This country-specific Q&A provides an overview of the legal framework and key issues surrounding merger control law in Germany.
This Q&A is part of the global guide to Merger Control. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/merger-control
Merger control in Germany is governed by the Act Against Restraints of Competition (ARC) and enforced by the Federal Cartel Office (FCO) in Bonn. The FCO is very active and a high number of cases are notified each year, mostly because of the comparatively low filing thresholds and the fact that minority shareholdings and non-controlling interests are caught. In most cases the information required for submission is not excessively burdensome and the review straightforward and swift.
Germany has a mandatory filing regime so that transactions falling within the ambit of German merger control must be notified and cannot be closed prior to clearance. Sanctions apply in case of violations.
Is mandatory notification compulsory or voluntary?
Notification is mandatory to the extent that the German merger control thresholds are satisfied and the transaction is likely to have market effects in Germany.
Is there a prohibition on completion or closing prior to clearance by the relevant authority? Are there possibilities for derogation or carve out?
Transactions that require notification to the FCO must not be completed prior to obtaining clearance from the FCO. Such transactions are generally void under German law so long as clearance has not been obtained or is not deemed to have been obtained following expiration of the waiting period. The prohibition to close a transaction prior to clearance also applies to precautionary notifications that are made in cases where the notification requirement is not clear-cut, e.g. where it is doubtful that a foreign transaction has sufficient domestic market effects to require notification and clearance from the FCO prior to closing. Only in specific situations involving, for instance, public tender offers may the parties under certain preconditions proceed with closing the transaction prior to obtaining clearance. Thus, the implementation of a public tender offer may be permissible to the extent the transaction is immediately notified to the FCO and the parties commit not to exercise their voting rights or do so only to preserve the full value of the transaction based on a derogation granted by the FCO.
While the FCO can grant derogations from the prohibition to close prior to or during the pendency of the German merger review, such request for derogation must be based on important grounds and is rarely granted in practice, also because clearance in straightforward matters is often available well ahead of the expiration of the statutory waiting period. The most plausible example are cases of imminent insolvency, but even in those situations it may often be possible to convince the FCO to grant swift clearance to a notified transaction instead of requesting a derogation.
Similar considerations apply with respect to ‘hold separate’ arrangements or envisaged local carve-outs of a global transaction by which the parties intend to close a foreign transaction although German merger approval has not yet been granted. While such structures are not impossible to consider in the German context, they require careful design and implementation in order to assure that domestic market effects of the global transaction are indeed fully eliminated. The stronger the likely effects of a transaction in Germany, the higher the risk becomes for the parties that the FCO would take issue with such measures and potentially challenge them. It is therefore advisable to discuss the intended local carve-out or ‘hold separate’ arrangement with the agency in advance to avoid that the FCO might consider imposing fines for gun jumping type violations. Again, it may be often easier in practice to discuss with the FCO ways to speed up German merger clearance rather than considering local carve out structures that may then become subject to challenge.
What are the conditions of the test for control?
The following types of transactions qualify as concentrations under the ARC:
- Acquisition of all or an essential part of the assets of another business;
- The acquisition of direct or indirect control by one or more businesses by way of rights, contracts or other means;
- The acquisition of shares in another company provided that the interest alone or together with other interests already held by the acquiring party exceeds 25% or 50% of the capital or voting rights in the other company.
The notion of control under German merger control rules is essentially consistent with that under the European merger control system.
What are the conditions on minority interest in your jurisdiction?
Acquisitions of minority interests often are subject to German merger control. With respect to a share deal, even the acquisition of 25% of shares or voting rights constitutes a concentration.
In addition, unlike many other merger control regimes, the ARC does not require the acquisition of direct or indirect control: in some instances even a share transfer below 25% can trigger a filing requirement if it gives rise to an acquisition of competitively significant influence. The precise scope of what constitutes a competitively significant influence often reflects a grey area.
For instance, an acquisition of less than 25% of shares has been deemed to confer competitively significant influence in a case where the acquirer had the contractual right to designate a specified number of members to the target’s supervisory board and enjoyed certain prerogatives with regard to capital increases of the target. In some instances, the FCO has reviewed acquisitions of shareholdings below 10% in concentrated industries as potentially giving rise to a competitively significant influence to the extent the acquirer was given additional contractual rights. In practice, the FCO is most likely to review non-controlling minority interests in cases of significant competitive overlap.
What are the jurisdictional thresholds (turnover, assets, market share and/or local presence)?
The German merger control provisions apply only to the extent that the parties to the concentration exceed certain turnover thresholds, namely:
- the combined aggregate worldwide turnover of all the companies involved is more than EUR 500 million;
- the German turnover of at least one company involved is more than EUR 25 million; and
- the German turnover of a least one other company involved exceeds EUR 5 million.
However, the merger will not be subject to the ARC, even if the above-mentioned turnover figures are met in the following situation:
- a company that had a worldwide turnover of less than EUR 10 million in the past business year and which is not controlled by a third company (or where the whole group had a worldwide turnover of less than EUR 10 million in the past business year) merges with another company.
Previously, transactions involving minor markets which existed for at least the last five years and the total German market volume of which did not exceed EUR 15 million in the preceding calendar year were also exempted from the notification requirement. The 8th amendment of the ARC has made such transactions involving de minimis markets still subject to the notification requirement, but they cannot be prohibited if only minor markets are at issue.
For purposes of the turnover thresholds, ‘companies involved’ are the buyer and the target, excluding selling entities.
The relevant turnover has to be calculated on the basis of the companies’ turnover during their preceding financial year, while also taking into account the revenues of affiliated upstream or downstream companies. Revenues from the supply of goods and services between affiliated companies (intra-group revenues) as well as excise taxes are not taken into consideration. Special turnover calculation rules are set up for companies trading in goods, companies in the print media sector, some financial institutions and building companies.
In calculating the turnover, turnover of activities that were acquired or divested after the last fiscal year must be added or subtracted.
Is there a particular exchange rate required to be used for turnover thresholds and asset values?
Exchange rates are calculated either based on the average exchange rate over the period of the last fiscal year, or the rate at the end of the last fiscal year. The European Central Bank publishes the applicable exchange rate on its website.
For 2016, the average exchange rate USD/EUR was 1.1069.
Do merger control rules apply to joint ventures (both new joint ventures and acquisitions of joint control over an existing business?
Joint ventures are subject to the same jurisdictional thresholds based on their parents’ turnover. If the turnover thresholds are met, the JV is in principle notifiable. However, the creation of a JV that has no effects on the Germany market may not be notifiable under the effects doctrine. The FCO has published in 2014 an updated guidance paper on the question when foreign JVs will be deemed to have sufficient domestic effects in Germany.
Unlike under EU merger control principles, German law does not distinguish between full-function and non-full-function joint ventures. The creation of a joint venture that does not perform all the functions of an autonomous economic entity on a lasting basis may hence be notifiable in Germany.
Another particularity is that under German law, the cooperative aspects of a JV between its parents are governed not by merger control rules, but by the restrictive practices provisions. Hence, the review of these provisions is not integrated into the merger control review and can be conducted independently of it. Clearance of the JV under the merger control rules does not preclude an investigation under the rules on restrictive practices, which may be conducted in parallel or after completion of the JV merger review.
In relation to “foreign-to-foreign” mergers, do the jurisdictional thresholds vary?
Foreign-to-foreign transactions require German merger approval in the same way as domestic transactions so long as they have sufficient domestic market effects for German antitrust law to apply. Prior to 2009, the domestic effects doctrine played a much larger role in Germany as only one party to a transaction was required to have sales in Germany above the relevant domestic sales threshold. Following the introduction of the second domestic turnover threshold requiring sales of another party to the transaction in excess of EUR 5 million, the FCO has held the view that a foreign transaction ordinarily has sufficient local effects once the parties meet the German merger control thresholds. This effectively limits the application of the effects doctrine to joint venture transactions as the JV parents will often meet the German merger control thresholds but the JV itself may have no nexus to the German market. The FCO has described the situations in which it is prepared to accept that foreign transactions do not fall within the ambit of German merger control in a guidance paper on domestic effects in merger control that was published in 2014. In essence, it exempts only such transaction from a notification requirement in Germany in which the JV is or will be active in a relevant market that does not include Germany and the JV parents have no meaningful market share in the same or any upstream or downstream markets. If there is doubt about whether the application of the effects doctrine does exempt a transaction from notification in Germany, it is possible to request the FCO’s guidance on this very point or submit a precautionary notification to the agency. The downside of the latter approach is only that the prevailing view in Germany is that the parties will then be required to await German merger clearance before closing the transaction.
For voluntary filing regimes (only), are there any factors not related to competition that might influence the decision as to whether or not notify?
Additional information: Jurisdictional Test
In addition to obtaining pre-merger clearance, parties are also required under German law to submit a very brief post-completion notice to the FCO, which is to be provided in due course following the closing of a previously notified transaction. This can be done by way of a short letter in which reference is made to all facts as described in the earlier pre-merger notification. In practice, if the FCO has not received such post-merger notice after a certain period of time, it will follow up with the parties to inquire about the status and by reminding them that submitting a post-completion notice is mandatory under German law.
What is the substantive test applied by the relevant authority to assess whether or not to clear the merger, or to clear it subject to remedies?
Since 2013, German law applies the “significant impediment to effective competition” (SIEC) test that is also applied in the EU. Market dominance remains the primary example of SIEC.
When analysing a merger the FCO looks in particular at the parties’ combined market shares, their economic and financial strength, access to suppliers and markets, links with other companies, legal or factual barriers to entry for competitors, and the ability of suppliers or customers to switch to alternative suppliers.
The ARC contains two rebuttable legal presumptions for market dominance: a company is presumed to dominate a market if its share exceeds 40%. Collective dominance is presumed where three or fewer companies together hold more than 50% market share, or if five or fewer companies hold a market share of more than two-thirds.
The FCO considers horizontal, vertical, unilateral, coordinated and conglomerate effects consistent with the approach in the EU and the US.
An important exception exists where a relevant market has been in existence for at least five years with a total annual size in Germany of less than EUR 15 million in the last calendar year (minor market clause). In this case, the FCO cannot prohibit the transaction based solely on such de minimis market.
Are non-competitive factors relevant?
No. Those would only become relevant in the rare exception of a subsequent ministerial approval proceeding following a merger prohibition by the FCO through which the parties may request the German Minister of Economic Affairs and Energy to overturn the FCO’s disapproval of the transaction. In such ministerial approval proceedings, the parties would need to establish that the transaction brings about significant benefits for the economy at large or that the implementation of the transaction is justified based on overwhelming interests of the population.
Are there different tests that apply to particular sectors?
None. In some circumstances (e.g. telecommunications, defence), authorisations from other authorities may be required on non-merger control grounds.
Are ancillary restraints covered by the authority’s clearance decision?
The FCO’s merger control decisions do not typically extend to ancillary restraints. These are to be assessment separately under German antitrust principles. At times, the FCO may make express reference to such ancillary restraints in its final decision or no action letter by expressly reserving its right to evaluate them separately under general antitrust rules. However, if it does not immediately initiate such proceedings, this would typically demonstrate that it does not see any need for intervention. In terms of distinguishing permissible from potentially objectionable ancillary restraints, the German antitrust practice is very much aligned with applicable EU principles. Thus, the European Commission’s Ancillary Restraints Notice and practice will be equally relevant when assessing the permissible scope of non-compete obligations or other ancillary restraints under German law.
For mandatory filing regimes, is there a statutory deadline for notification of the transaction?
There is no filing deadline under German law, but notifications should be provided sufficiently in advance of the envisaged closing date so as to allow for sufficient time for the FCO’s review, depending on the perceived complexity of the matter.
What is the earliest time or stage in the transaction at which a notification can be made?
Filings do not require execution of a binding transaction agreement and can be made once the transaction has become sufficiently concrete and is no longer merely hypothetical (typically at MOU or LOI stage). In principle, no transaction documents have to be provided in conjunction with the notification of a transaction to the FCO. It is also not required under German merger control practice to have pre-filing consultations with the FCO staff. Only in truly complex matters is it worth considering whether to approach the FCO prior to submission of a formal notification.
What is the basic timetable for the authority’s review?
Following submission of a complete notification, the FCO must decide within one month whether to clear the transaction or enter into a more detailed (so-called Phase II) investigation of the matter. Phase II decisions must be issued within a period of three further months, so within four months after filing.
Under what circumstances the basic timetable may be extended, reset or frozen?
The initial review period of one month from the date of filing cannot be extended further other than by the FCO entering into a Phase II investigation of the matter. The Phase II timetable, however, is subject to various extensions. The most common example is an agreed upon further extension of time, which is not unusual in complex merger reviews or in cases that require remedies. Even multiple extensions of time are conceivable subject to prior agreement with the notifying parties. In addition, the Phase II review period is being automatically extended by one more month should the parties submit commitments to the FCO. Consistent with EU merger control practice, the FCO also has the ability to stop-the-clock in Phase II proceedings if the parties fail to respond to the FCO’s questions in a timely and complete manner.
The vast majority of cases, of course, is being cleared by the FCO within the initial one month review period or even ahead of time. Should the one month period not be deemed sufficient and in lieu of facing the risk of a Phase II investigation, parties may in appropriate cases also decide to withdraw the notification at the end of Phase I and then refile as is quite frequently done under the US merger control system.
Are there any circumstances in which the review timetable can be shortened?
In the majority of straightforward matters that are being notified in Germany, the FCO will be often in a position to give clearance ahead of the expiration of the Phase I timetable of one month and does so as a matter of course, depending on other factors such as overall workload and the case handler’s availability to clear the matter early. It is also often possible to short-cut the German merger review, in particular to the extent that there are important grounds for the parties to push for clearance ahead of time.
Which party is responsible for submitting the filing? Who is responsible for filing in cases of acquisitions of joint control and the creation of new joint ventures?
In case of asset and share deals, both parties are responsible for the filing. In the event of an acquisition of direct or indirect control by one or more businesses by way of rights, contracts or other means, only the buyer is responsible for the filing.
What information is required in the filing form?
Unlike in other jurisdictions, there is no mandatory notification form. Notifying parties are typically required to provide at least the following information:
- Name, place and description of the type of business of each of the parties;
- Turnover in Germany, the EU, and worldwide;
- A description of the transaction as well as the products and markets involved;
- Market shares, including the basis for their calculation or estimate, if combined shares exceed 20% in Germany;
- An assessment of the competitive impact of the transaction;
- A designated legal representative in Germany for parties that are domiciled abroad.
Which supporting documents, if any, must be filed with the authority?
No supporting documents are required by law. Parties typically provide documents supporting their market share estimates or calculations, or transaction documents where relevant. Documents can usually be provided in English or German.
A legal representative (counsel) can submit the notification on behalf of one or more notifying parties. A formal written POA is not required.
Is there a filing fee? If so, please specify the amount in local currency.
The FCO charges a fee that is dependent on the economic significance of the transaction and the FCO’s administrative efforts (time and resources) involved in reviewing the transaction. The amount varies from approximately EUR 3,000 in straightforward cases to up to EUR 50,000. In exceptional circumstances, a fee of up to EUR 100,000 may be imposed. Unlike in most other merger control jurisdictions, the filing fee must not be paid upfront and is determined by the FCO only at the end of its merger review. It can be separately appealed.
Is there a public announcement that a notification has been filed?
A short statement indicating the parties’ names, the target, the sector, and the filing date is published on the FCO website a few days after filing. Similar information is being published when the FCO initiates a Phase II investigation.
Does the authority seek or invite the views of third parties?
Unless a notified transaction quite obviously does not require market testing, the FCO routinely reaches out to third parties to solicit their feedback, be it in Phase I and much more broadly of course in Phase II merger reviews. Third parties such as customers, competitors, consumer and trade associations thereby often have a significant impact on the outcome of merger reviews before the FCO. Within the context of a Phase II merger review, third parties that may be implicated by the outcome of the decision can also request to be formally admitted to the merger control proceedings. This, in turn, will give them the right to access to FCO’s files and provide formal submissions as well as to ultimately challenge formal Phase II decisions of the FCO. By contrast, such rights do not exist during the Phase I merger review process so that notifying parties typically will have a strong interest in avoiding Phase II reviews, in particular if third party opposition is to be expected.
What information may be published by the authority or made available to third parties?
Other than information disclosed in the public statement (see 6.5 above), no information is disclosed. Phase I decisions are not made public. In some instances, the FCO publishes case reports on Phase I or Phase II cases which, however, do not contain any confidential information.
Following a Phase II investigation, a redacted version of the final decision is published on the FCO’s webpage unless the notifying parties withdraw the notification prior to the FCO reaching a final verdict.
Does the authority cooperate with antitrust authorities in other jurisdictions?
The FCO regularly cooperates with other antitrust authorities within the context of the European Competition Network and beyond, in particular the US authorities. For the exchange of party-specific information, a waiver is required from (and typically granted by) the parties.
What kind of remedies are acceptable to the authority? How often are behavioural remedies accepted in comparison with major merger control jurisdictions, such as the EU or US?
The FCO’s Phase II decision can include conditions and obligations that the parties must satisfy to avoid prohibition of the transaction. These will be typically structural in nature. By contrast, German law contains an express prohibition of behavioural remedies to the extent that they would subject the parties to a permanent behavioural control. Behavioural remedies that do not lead to such permanent monitoring of the parties’ conduct are possible, albeit very rare in practice. In most instances, the FCO will be prepared to accept behavioural remedies only if their effect is similar to structural undertakings.
If divestitures are offered, the FCO will ordinarily want to pre-approve the designated buyer so that the FCO’s clearance decision will be conditional on the agency agreeing to the designated buyer. The divestiture will need to be accomplished within a certain period following the conditional merger approval, often within a six-month term, to be extended by a further six months if the business has not been sold and a divestiture trustee will have to effect the sale.
Fix-it-first solutions are possible, but have remained rare exceptions to date.
What procedure applies in the event that remedies are required in order to secure clearance?
It is usually within the parties’ prerogative to offer sufficient remedies that will allow the FCO to clear the transaction subject to appropriate conditions and obligations. Thus, the FCO will need to rely on the merging parties to offer acceptable remedies and cannot self-impose perceived solutions in its final clearance decision, although it may suggest solutions that it would deem satisfactory to avoid a negative outcome. Within the context of global transactions that present issues in Germany, the FCO will not simply be prepared to rely on remedies entered into with other agencies and give unconditional clearance on the back of those. However, depending on the facts it may decide that the transaction does not result in similar concerns in Germany and be prepared to give clearance to a transaction well ahead of other key agencies reviewing the transaction in parallel.
Different from European merger control principles, there is no option for the parties to offer commitments in Phase I and equally no formal deadline for them to propose commitments in Phase II. Of course, if the parties offer remedies very late in Phase II, they are likely to be requested by the FCO to agree to an extension of the Phase II decision deadline in order to avoid a negative decision, in addition to the automatic one-month extension once remedies are formally submitted. Remedies offered by the notifying parties will be invariably market tested by the FCO in a way similar as is customary under European merger control practice. The FCO has published on its website model texts for offering remedies and a trustee mandate, which also are similar to the European Commission’s templates, albeit considerably shorter.
What are the penalties for failure to notify, late notification and breaches of a prohibition on closing?
There are no penalties for late notification as there are no deadlines for filing.
Fines for failure to notify and for breaches of a prohibition on closing (gun jumping) are possible up to EUR 1 million or, as far as businesses are concerned, up to 10% of their annual total worldwide group turnover during the last financial year. The fine will be imposed on the party responsible for making the filing (see question 6.1 above).
The FCO has imposed significant fines in recent years (up to EUR 4.5 million) for gun jumping violations.
In addition, transactions concluded in violation of a merger control clearance requirement are void under German law, and the FCO may also order their dissolution.
What are the penalties for incomplete or misleading information in the notification or in response to the authority’s questions?
The most immediate “penalty” for incomplete information is a declaration of incompleteness which prevents the review period from running until the parties have provided all missing information. Fines indicated in question 8.1 apply to misleading information.
Can the authority’s decision be appealed to a court? In particular, can third parties who are not involved in the transaction appeal the decision?
The parties can appeal Phase II decisions before the Higher Regional Court (Oberlandesgericht OLG) Düsseldorf. Phase I decisions are not subject to appeal.
Third parties that have been formally admitted as intervening parties in a Phase II proceeding can appeal only if they can demonstrate that the decision directly and individually affects their competitive interests.
Appeals must be filed within one month after service of the decision.
Proceedings before the Higher Regional Court of Düsseldorf will typically last 12 to 36 months until judgment. The judgment of the Higher Regional Court can then be appealed further on legal grounds within one month to the German Federal Court of Justice in Karlsruhe provided the Higher Regional Court of Düsseldorf has admitted such further legal appeal. A judicial review before the Federal Court of Justice will normally take another one to three years.
In exceptional cases, the parties can apply for ministerial authorization by asking the Federal Minister of Economic Affairs and Energy to overrule the FCO’s prohibition decision.
What are the recent trends in the approach of the relevant authority to enforcement, procedure and substantive assessment?
The FCO received approximately 1,200 merger notifications in 2016, which represents a slight increase over the 1,100 transactions that were notified in 2015. Only about 1% of all notified transactions (10 in 2016) attract an in-depth Phase II review, half of which on average still end up being approved without conditions.
Are there any future developments or planned reforms of the merger control regime in your jurisdiction?
A proposal for an amendment of the ARC is currently before the German parliament. If adopted, the proposal would introduce an important change by adding an additional threshold: under the new rules, transactions falling below the second domestic sales threshold of EUR 5 million in Germany (see question 3.2 above) would be reportable if the value of the transaction exceeds EUR 350 million and the business whose sales do not exceed EUR 5 million is likely to be active in Germany. This would significantly widen the scope of potential merger control filings to transactions with only very indirect or minor links to Germany, specifically targeting R&D pipeline transactions in the pharmaceutical sector which have so far escaped merger control in Germany (and the EU) as they did not generate sufficient revenue in the prior year, yet the transaction value and projected sales may be substantial.