Merger control in Germany: overview
A Q&A guide to merger control in Germany.
The Q&A gives a high level overview of merger control, regulatory framework and regulatory authorities, relevant triggering events and thresholds in Germany. It also covers notification requirements, procedures and timetables, publicity and confidentiality, third party rights, substantive test, remedies, penalties, appeals, joint ventures and proposals for reform.
For information on restraints of trade, monopolies and abuses of market power in Germany, visit Restraints of trade and dominance in Germany: overview.
This Q&A is part of the global guide to competition and cartel leniency. For a full list of jurisdictional Merger Control Q&As visit www.practicallaw.com/mergercontrol-guide. For a full list of jurisdictional Restraints of Trade and Dominance Q&As visit www.practicallaw.com/restraintsoftrade-guide.
For a full list of jurisdictional Cartel Leniency Q&As, which provide a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities in multiple jurisdictions, visit www.practicallaw.com/leniency-guide.
The German merger control rules are found in sections 35 to 43 of the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen) (ARC). The text of the ARC (including an English translation of it) as well as various notices and information leaflets are available on the website of the Federal Cartel Office (Bundeskartellamt) (FCO) (www.bundeskartellamt.de). Joint ventures are also reviewed under the rules for regulating restrictive agreements (see Question 16).
The main authority responsible for the implementation of German merger control rules is the FCO. The FCO is an independent federal authority and, although it reports to the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie), it does not receive political orders in relation to its decision making.
See box, The regulatory authority.
The following types of transactions are considered to be concentrations (section 37, Act against Restraints of Competition (ARC)):
The acquisition of (direct or indirect) control over another undertaking or parts of it by one or several undertakings.
The acquisition of all or substantial part of the assets of another undertaking.
The acquisition of shares in a company's capital or voting rights resulting in an overall shareholding reaching or exceeding 25% or 50% respectively.
Any other combination of undertakings enabling one or several undertakings to directly or indirectly exert a competitively significant influence on another undertaking.
The concept of "control" in German merger control law is very similar to the concept applied in EU merger control. Control can be acquired by rights, contracts or any other means which separately or in combination, and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking. Therefore, acquisitions of minority interests or de facto changes of control are also covered. There is an acquisition of control where one or more acquirers establish a new undertaking or acquire control of an existing undertaking. There is a change of control where the structure of control changes (for example, from sole to joint control or a change in the number of undertakings controlling another undertaking).
The concept of "competitively significant influence" is much broader and may also cover acquisitions of minority shareholdings of less than 25%, particularly in the case of transactions involving strategic buyers.
If credit institutions, financial institutions or insurance companies acquire shares in another undertaking with a view of reselling them, this is not deemed to constitute a concentration provided that the voting rights attached to the shares are not exercised and the resale occurs within one year.
German merger control rules do not apply to concentrations that are subject to the EU merger control rules set out in Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation), except for particular cases set out in the Merger Regulation.
A concentration is subject to German merger control, if in the last completed financial year preceding the transaction all of the following criteria were met:
The combined worldwide turnover of all participating undertakings exceeded EUR500 million.
The turnover of at least one participating undertaking exceeded EUR25 million in Germany.
The turnover of at least one other participating undertaking exceeded EUR5 million in Germany.
Foreign-to-foreign mergers are also subject to German merger control, provided both:
The above turnover thresholds are met.
The proposed concentration will have an appreciable effect in the German territory. In most cases a concentration will be deemed to have an appreciable domestic effect if the turnover thresholds are met.
The concept of turnover in German merger control law is very similar to the concept applied in EU merger control. The following is noteworthy:
The turnover to be calculated must not comprise the turnover of the seller, unless after the acquisition the seller still holds control or holds at least 25% of the shares.
Turnover figures must be calculated on a consolidated group basis excluding intra-group sales and VAT.
For credit institutions, financial institutions as well as building and loan associations, the relevant turnover must be the total amount of proceeds including, among other things, any interest income, commission earnings or share earnings.
For insurance companies, the premium income must be taken into account instead of turnover.
There are also some specific rules that must be observed when calculating turnover in the context of German merger control:
Only 75% of the turnover resulting from the trade of goods (that is, goods which were simply bought and resold) is to be taken into account.
For undertakings that are active in the publication, production and distribution of press, or in the production, distribution and broadcasting of radio and television programmes and the sale of radio and television advertising time, the relevant turnover must be multiplied by eight for merger control purposes.
Two or more concentrations that do not individually meet the above thresholds, but take place between the same parties within a two-year period, will be treated as one and the same concentration arising on the date of the last transaction.
German merger control rules do not apply and no notification is required if the worldwide turnover of one participating undertaking (including its controlling entity) was less than EUR10 million (de minimis company exemption). In this case, the turnover of the seller must also be considered when calculating the turnover of the target, provided that the seller controls the target before the proposed transaction.
Transactions affecting de minimis markets (that is, concentrations exclusively affecting a market in which goods or commercial services have been offered for at least five years and which had a market volume of less than EUR15 million in the last calendar year), are still exempt from a substantive review, but must be notified (section 36, ARC).
Mandatory or voluntary
Concentrations that are subject to German merger control (see Question 2) must be notified to the Federal Cartel Office (FCO).
There is no deadline for submitting pre-merger notifications to the FCO. A notification can be filed at any time before the completion of the proposed concentration, even before the signing of the transactional documents.
Pre-notification and formal/informal guidance
The FCO is only prepared to give informal guidance before notification at the parties' request. Generally, the FCO requires a (nearly) complete draft application for any pre-notification discussions. Although pre-notification contracts may cover the required information, the contracts regularly concern the question of approval or prohibition. However, the FCO is not permitted (and therefore not willing) to give clear advice in this respect. Therefore, pre-notification contracts are in general advisable in cases with a high prohibition risk only, to avoid pre-merger public notice of the transaction.
Responsibility for notification
All undertakings participating in the proposed concentration are responsible for submitting a notification. However, in practice it is sufficient if only one party submits the notification on behalf of all the other parties involved.
The notification must be addressed to the FCO.
Form of notification
There is no compulsory form to be used for the notification of concentrations to the FCO.
German merger control proceedings are subject to a fee, which is imposed by the FCO on the notifying party at the end of the proceedings. The fee amount depends on the FCO's administrative expenses and the economic significance of the notified transaction. The fee can amount up to EUR50,000 (EUR100,000 in exceptional cases). In cases of minor importance, the fees usually range between EUR5,000 and EUR15,000.
Obligation to suspend
A concentration that is subject to German merger control must not be implemented before the FCO has granted clearance. Any violation of this prohibition constitutes an administrative offence and results in all underlying contracts/transactions being (preliminarily) void and unenforceable under German law (see Question 11, Implementation before approval or after prohibition). In exceptional cases, the FCO can grant a waiver from the obligation to suspend the closing of the transaction, if the parties can provide important reasons for doing so (in particular, if a suspension would severely harm the participating undertakings or third parties).
Procedure and timetable
Initial examination proceedings (Phase I)
On receipt of a pre-merger notification, the Federal Cartel Office (FCO) starts a preliminary investigation examining whether the concentration may raise substantial competition concerns in Germany and, thus, is likely to meet the conditions for prohibition. If the FCO does not identify substantial competition concerns, it issues an informal letter informing the notifying parties that the concentration is cleared and can be completed. The clearance letter is not reasoned and cannot be appealed by the participating undertakings or by third parties.
If the FCO does identify substantial competition concerns, it must inform the notifying parties that a main examination proceeding will be initiated within one month from receiving the (complete) notification. If the FCO does not notify parties of the initiation of main examination proceedings within one month, the concentration is deemed to be cleared.
Main examination proceedings (Phase II)
If the main examination proceedings confirm the existence of competition concerns, the FCO sends a written statement of objections to the notifying parties setting out the relevant issues. The parties can then submit (further) comments and/or proposals for commitments.
Phase II proceedings must be finalised within four months from receipt of the (complete) notification by one of the following:
Unconditional clearance decision.
Clearance decision, which is subject to conditions or obligations/commitments.
If no decision is taken by the FCO within the prescribed period, the concentration is deemed to be cleared under German merger control rules. However, the following exemptions apply:
The four-month period may be extended in any circumstances for a fixed time, provided that the notifying parties consent to it.
The four-month period is extended automatically for one month, when the parties offer remedies for the first time (see Question 10).
The four-month period is suspended automatically if the parties fail to provide sufficient and timely information in response to information requests of the FCO (until such information is provided).
Decisions adopted by the FCO in Phase II are formal decisions, which must be reasoned and are subject to appeal (see Question 12).
For an overview of the notification process, see flowchart, Germany: merger notifications ( www.practicallaw.com/2-504-4045) .
Publicity and confidentiality
The fact that a pre-merger notification has been submitted is published on the Federal Cartel Office's (FCO's) website. The following information is disclosed:
The date of the notification.
The identity of the participating undertakings.
Business sector(s) affected by the concentration.
The file number.
The division unit in charge of the proceedings.
Federal states (Bundesländer) where the parties' business seats are registered or which are affected by the concentration.
The date of the Phase I clearance decision.
The date of any decision (clearance/prohibition) adopted or other procedural developments (for example, extension of the investigation period, withdrawal of notification) in Phase II.
In addition, non-confidential versions of all Phase II decisions and summary reports of selected cases are published on the FCO's website.
The list of notified concentrations published on the FCO's website is regularly updated. Therefore, the fact that a proposed concentration has been notified becomes public relatively soon. Unlike EU merger control, the FCO by its publication does not actively solicit views from anonymous third parties, such as customers, competitors and suppliers (see Question 6).
The FCO has a statutory obligation to keep information relating to individual personal data or to business secrets confidential. Consequently, business secrets and other confidential information contained in pre-merger notifications, or provided by the parties in the context of a merger control proceeding, are kept confidential by the FCO.
Confidentiality on request
The parties may request that certain information provided to the FCO should be kept confidential. The FCO will accept such requests if that information amounts to a business secret (see above, Automatic confidentiality).
Rights of third parties
The Federal Cartel Office (FCO) may consult third parties affected by the proposed concentration (such as competitors, customers or suppliers) at any stage of the investigation and ask for information about the relevant market(s) or for their comments on the proposed concentration. On separate application, such third parties may also be admitted by the FCO to join the proceedings as "intervening party" if their interests are materially affected by the notified concentration. However, the FCO does not actively solicit views from anonymous third parties. Unlike EU merger control, the FCO does not conduct market tests of commitments offered by the notifying parties to achieve a merger clearance with conditions or obligations.
Only third parties admitted as intervening party have a right to access the file to the extent that the knowledge of the contents is necessary to assert or defend their legal interests. Drafts of decisions and preparatory documents of the FCO are not accessible. The same applies for documents that contain business secrets or other confidential information of the parties.
Only third parties admitted as intervening party following an application, have a right to be heard by the FCO.
A concentration must be prohibited by the Federal Cartel Office (FCO) if it leads to a significant impediment of effective competition (SIEC test), in particular if it leads to the creation or strengthening of a dominant market position, unless the parties can prove that it will also result in an improvement of market conditions on another market, which may outweigh the disadvantages of the market dominance (section 36(1), Act against Restraints of Competition (ARC)).
Under the statutory definition of market dominance (section 18, ARC), a dominant market position exists if one or more companies have no competitors at all, are not subject to significant competition or are in a superior market position that enables them to act independently of competitors, customers and other market participants. When assessing a concentration, the FCO takes into account various criteria, including in particular:
The market shares of the parties and their competitors.
The competitive structure of the relevant market.
Any legal or factual barriers to market entry.
Access to customers and suppliers.
Actual or potential competition by companies established within or outside Germany.
Any links with other companies.
German merger control rules contain several rebuttable presumptions as to the existence of market dominance (see Restraints of trade and dominance in Germany: overview, Question 17 ( www.practicallaw.com/4-570-7345) ).
Neither the Act against Restraints of Competition (ARC) nor German case law recognise an "efficiency defence". However, under the SIEC test (see Question 7), the Federal Cartel Office (FCO) must not prohibit a concentration if the notifying parties can prove that the concentration will lead to improvements of the conditions of competition and these improvements will outweigh the impediment of competition (section 36(1), ARC).
Since this "balancing-test clause" (Abwägungsklausel) is tied to improvements of the conditions of competition, only competition-related aspects can be taken into account. Macroeconomic aspects, general interests, customer benefits, job security or efficiency gains are not considered competition-related within this meaning. In addition, pure efficiencies of a merger (for example, increased capacity utilisation or cost-savings) are not considered capable of improving the conditions of competition.
The improvements of the conditions of competition must, with substantial likelihood, be achieved precisely by the concentration (causality requirement). It is essential that the improvements can only be achieved through the concentration in this specific form. Improvements of the conditions of competition can also take effect in a different market, provided this market is in Germany.
A "failing firm defence" is recognised by German case law. The Federal Cartel Office (FCO) must not prohibit a concentration that leads to a significant impediment of effective competition, if the merging parties can prove all of the following:
The party in need of financial restructuring would be jeopardised without the concentration.
There is no alternative to the takeover by the other party.
A substantial part of the remaining market potential would, in any case, accrue to the acquiring party if the party in need of financial restructuring fails or otherwise exits the market.
Apart from the failing firm defence, the Act against Restraints of Competition (ARC) provides an exemption for mergers of publishing companies (section 36(1)).
Remedies, penalties and appeal
Unlike EU merger control, the Federal Cartel Office (FCO) can impose remedies such as conditions and obligations in Phase II decisions only. However, the parties can offer such remedies at any stage of the merger control proceedings. In practice, the FCO prefers to impose structural remedies, but may also accept behavioural remedies in specific cases. Remedies subjecting the parties to permanent behavioural control are prohibited by law.
Structural remedies such as the obligation to divest certain parts of the parties' business to a suitable buyer (to be approved by the FCO) are usually accompanied by arrangements ensuring the implementation and the monitoring of the proposed divestment, for example, by appointing an independent monitoring trustee (Sicherungstreuhänder) and/or divestiture trustee (Veräußerungstreuhänder). The appointment of such trustees requires the FCO's prior written approval.
The FCO has published on its website several model texts (in German and English) for different types of remedies and a trustee mandate (see below, Online resources). In remedy cases, the examination period (Phase II) is extended automatically for one month (see Question 4).
Failure to notify correctly
An incorrect or incomplete notification of a concentration constitutes an administrative offence which may result in fines of up to EUR100,000 (in case of intentional violation) or up to EUR50,000 (in case of negligence) being imposed on the relevant company and/or its officers. A failure to notify is not deemed an infringement on its own. However, failing to notify is, in general, accompanied by implementing the merger before approval, and the latter, constitutes an administrative offence, which can result in high fines (see below Implementation before approval or after prohibition).
Implementation before approval or after prohibition
Closing a notifiable concentration without the FCO's prior clearance (or following a prohibition) constitutes an administrative offence, which may result in fines of up to:
EUR1 million, for individuals.
10% of the worldwide group turnover, for companies.
The Federal Cartel Office (FCO) can also initiate demerger proceedings in relation to notifiable concentrations that have been closed without the FCO's prior clearance (section 41, Act against Restraints of Competition (ARC)). There is no limitation period for the initiation of such proceedings.
Failure to observe
If clearance is granted by the FCO subject to conditions precedent, it does not become effective unless the conditions are actually met.
Clearance decisions, which are subject to conditions subsequent, allow the concentration to be implemented immediately, but automatically become invalid if the conditions are not met. In such cases, the FCO can order the concentration to be dissolved.
If the clearance decision is subject to obligations and the parties fail to comply with these obligations, the FCO can issue a decision withdrawing the clearance and ordering the dissolution of the concentration.
Non-compliance with conditions or obligations ordered by the FCO constitutes an administrative offence, which can result in fines of up to EUR1 million (for individuals) or 10% of the total worldwide group turnover (for companies).
Rights of appeal
Only Phase II decisions of the Federal Cartel Office (FCO) can be appealed (such as, clearances (by third parties, see Question 6), clearances with remedies (by the notifying parties and/or by third parties) and prohibitions (by the notifying parties).
The appeal must be filed with the FCO in writing within one month following the date on which the decision is notified to the appellant. The decision on the appeal is taken by the Higher Regional Court (Oberlandesgericht) in Düsseldorf (section 63 et seq., ARC). The timeframe for a decision on appeal varies, but takes at least several months.
In addition, the parties can also apply for a special Ministerial Authorisation (Ministererlaubnis), granted by the German Federal Minister for Economic Affairs and Energy, if a proposed concentration has been prohibited by the FCO (section 42, ARC). Such an application must be submitted in writing:
Within one month following the date of the service of the FCO's prohibition decision.
If the decision is appealed, within one month following the date when the decision becomes final.
Third party rights of appeal
Third parties are only entitled to appeal FCO's decisions if they have been admitted to the merger control proceeding as intervening party (see Question 6).
Automatic clearance of restrictive provisions
A merger clearance does not automatically clear all restrictive provisions contained in the underlying agreements, such as non-compete obligations. Such provisions can be reviewed by the Federal Cartel Office (FCO) or any other competent competition authority under rules for regulating restrictive agreements (sections 1 to 3, Act against Restraints of Competition (ARC)) at any time. However, as a general rule, the rules for regulating restrictive agreements of the ARC do not apply to ancillary arrangements that are related and indispensable to the implementation of a concentration.
Regulation of specific industries
Irrespective of the application under (German) merger control rules, acquisitions of shareholdings in German undertakings may be subject to the special rules of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz). If an investor from outside the EU intends to acquire a shareholding of 25% or more in a German undertaking, the transaction may be subject to a separate examination by the Federal Ministry of Economics and Technology if it is likely to threaten Germany's public policy or security. The same applies if such a shareholding is acquired by an EU-based investor in which an investor from outside the EU holds a share of 25% or more. There is no need to notify such a transaction to the Ministry, but the Ministry may decide to start an investigation on its own initiative.
Moreover, the acquisition of a shareholding of 25% or more in undertakings active in the war weapons industry or in the industry of IT products that are concerned with the processing of governmental classified information must be notified to the Federal Ministry of Economics and Technology in advance by the acquiring party and may be prohibited for public security reasons.
The Federal Cartel Office (FCO) must obtain the opinion of a specific regulator, the Federal Network Agency (Bundesnetzagentur), if it initiates a main examination proceeding (Phase II) for a concentration in one of the following sectors:
Network-based supply of energy or gas.
The creation of a joint venture or the acquisition of a shareholding in an existing joint venture may qualify as a concentration under German merger control rules if it results in two or more shareholders each holding a share of 25% or more in the joint venture. The same applies if two or more shareholders acquire joint control of the joint venture.
In these cases, the acquisition is subject to German merger control if the turnover thresholds are met (see Question 2, Thresholds), irrespective of whether the joint venture constitutes a full-function joint venture under the meaning of the Regulation (EC) 139/2004 (Merger Regulation).
In addition, the creation of a joint venture may also be reviewed under the rules regulating restrictive agreements (see Question 1).
The Act against Restraints of Competition (ARC) (section 50 b) entitles the Federal Cartel Office (FCO) to co-operate with regulatory authorities in other jurisdictions, especially in relation to merger investigations. In particular, the FCO is authorised to exchange information with other regulatory authorities. However, confidential information can only be exchanged if the undertakings concerned have waived confidentiality.
Details for the co-operation between EU national regulatory authorities in multi-jurisdictional merger investigations are set out in the document on Best Practices on Cooperation between EU National Competition Authorities in Merger Review, which was drawn up by the EU Merger Working Group.
In addition, the FCO co-operates with other competition authorities on the basis of bilateral agreements, for example, with the US Department of Justice and the Federal Trade Commission, and within the framework of the International Competition Network (ICN).
Notable recent mergers include:
Edeka / Kaiser's Tengelmann (B2-96/14). The Federal Cartel Office (FCO) prohibited Edeka's acquisition of all 451 Kaiser's Tengelmann outlets. In the FCO's view, the project would have considerably worsened competition conditions on a large number of highly concentrated regional markets and in several municipal districts. The takeover of Kaiser's Tengelmann would have greatly limited choice for local consumers and the possibility for them to switch to another retailer. The project would have also caused competition problems in the procurement markets. The commitments submitted by the parties following the FCO's statement of objections were not adequate to solve the competition problems on the markets affected. However, the Federal Minister for Economic Affairs has granted a Ministerial Authorisation under strong remedies. REWE, one of EDEKA's strongest competitors has lodged an appeal against this decision.
Continental AG / Veyance Technologies, Inc. (U.S.) (B9-74/14). The FCO cleared the multi-jurisdictional acquisition of Veyance Technologies, one of the four major component suppliers in the automotive industry, by the German company Continental, without obligations. Despite Continental's high market share in the EEA market for air springs for heavy-duty utility vehicles, and the reduction of the number of major suppliers from four to three, the FCO found that the merger posed no significant competition concerns. The FCO concluded that Veyance only played a minor role in the market, had not won any new customer in the past years, and that the parties to the merger had rarely competed in calls for tenders by motor vehicle manufacturers. Continental's closest competitors are Vibracoustic and Firestone, which are number two and number three on the market, respectively. Competitive pressure is also exerted by smaller suppliers.
TBC Netherlands Cooperative U.A./Frauenthal Automotive Sales GmbH (B9-115/14). TBC, an acquisition vehicle of The Boler Company Inc. and its subsidiary Hendrickson Investment Company (the latter active in the field of producing suspension systems and components) withdrew the notification of its planned acquisition of Frauenthal, also active in the production of metal components for utility vehicle suspension systems. After the FCO had risen competitive concerns during Phase II proceedings due to high market share additions, TBC sold its shares in a third company. Therefore, the acquisition was no longer subject to notification in Germany.
Proposals for reform
There are currently no visible proposals to reform merger control in Germany. However, following the Facebook/What 's App merger, which did not meet the German thresholds, the German Federal Minister for Economic Affairs and Energy has started discussions about implementing different thresholds for mergers in the digital economy that refer to sold data volume or value of assets
Federal Cartel Office (Bundeskartellamt) (FCO)
Description. Official website of the FCO which provides information on German and EU competition law,the FCO's activities, the FCO's internal structure, and so on. Some documents are also available in English and French.
The regulatory authority
Federal Cartel Office (Bundeskartellamt) (FCO)
Outline structure. The FCO comprises 12 independent decision-making departments (Beschlussabteilungen), nine of which are in charge of competition law enforcement in specific economic sectors (including merger control). The remaining three decision-making departments specialise in the prosecution of hard-core cartels. The decision-making departments are supported by a specialised team of economists, among others.
A detailed organisational chart listing the respective areas of competence is available on the FCO's website.
Responsibilities. The FCO is the regulatory authority responsible for the enforcement of German and EU competition law, including the control of concentrations and the investigation and prosecution of anti-competitive agreements and practices, as well as of abuses of market powers.
The FCO is an independent authority which is accountable to the Federal Ministry for Economic Affairs and Energy.
Procedure for obtaining documents. There is no particular procedure for obtaining documents from the FCO. However, the text of the relevant legal provisions, information leaflets, further guidance documents and decisions issued in individual cases are published on the FCO's website. Most of these documents are in German, but some documents are also available in English and French.
Dr. Torsten Uhlig, Partner
Kümmerlein, Simon & Partner Rechtsanwälte mbB
Professional qualifications. Germany, Attorney-at-law (Rechtsanwalt), 1998
Areas of practice. German and EU competition law.
Non-professional qualifications. University of Göttingen, Germany, 1993; J.D., 1996
Has recently advised and represented clients in cartel cases relating to the following goods and markets:
- Fire engines (German investigation).
- Propane gas (German investigation; Supreme Court).
- Automatic doors (German investigation).
- Sausages and meat products (German investigation).
- Sewage duct construction, refractory construction et seq. (bid-riggings, German investigations).
- Metal packaging (German investigation).
Languages. German, English
Professional associations/memberships. Association of German Anti-trust Lawyers (Studienvereinigung Kartellrecht e.V.).