What Happened:
- On January 19, 2021, major changes to German antitrust/competition law, i.e. the 10th Amendment Act to the German Act Against Restraints of Competition (ARC) entered into force.
- In addition to introducing stricter abuse control, in particular over digital companies with a strong market position (so much so that one may refer to the act as the “ARC Digitisation Act”) and effecting changes to procedural rules and cartel prosecution, the new law also introduces substantive changes in merger control rules which may bring significant relief for international transactions. More information on the ARC Digitisation Act and other altered antitrust/competition rules will follow in this blog.
- The thresholds of German merger control have traditionally been very low in comparison to other international regimes. The German legislator has now decided to significantly increase the domestic turnover filing thresholds. Last week’s discussions in the German parliament and in its economic committee surprisingly resulted in even higher thresholds than originally proposed in the bill presented by the German government.
What This Means:
- The two domestic turnover thresholds of German merger control have been raised considerably. Accordingly, a concentration must be notified prior to its completion if in the last financial year;
- The combined worldwide revenues of all participating enterprises (groups) exceeded EUR 500 million (as before);
- One participating enterprise had revenues exceeding EUR 50 million (previously: EUR 25 million) in Germany; and
- At least one further enterprise had a turnover in Germany exceeding EUR 17.5 million (previously: EUR 5 million).
- Similarly, the specific turnover rules applicable to the media sector have been adjusted. Previously, eight times the amount of the turnover achieved through media-related activities had to be taken into account. To reflect the changed economic conditions in the relevant markets, the ARC Digitisation Act reduces the multiplication factor to four.
- Changes have also been made to the so-called de minimis markets Pursuant to previously applicable law, a concentration could not be prohibited by the Federal Cartel Office (despite an impediment to effective competition) in any market that had been in existence for at least five years, and that had a total annual value of less than EUR 15 million in the last calendar year. The turnover threshold for the existence of a de minimis market is now raised to EUR 20 million. The new rules have been reformulated in such a way, that the Federal Cartel Office may now be willing to prohibit a merger if the requirements for prohibition are met regarding a de minimis market, the value of which is less than EUR 20 million, but where the value of all relevant markets (including other de minimis markets) exceeds EUR 20 million.
- To harmonise the time limit regime of the merger control procedure, the German legislator extended the standard Phase II investigations from four to five months from the date of notification. In total, including potential amicable extensions, the Phase II procedure may not exceed six months (or seven months in the case conditions or obligations are offered to solve competitive issues).
- One (potential) burden: According to the ARC Digitisation Act, the Federal Cartel Office can oblige a company to notify any merger if certain conditions are met. In particular, a so-called “sector enquiry” by the Federal Cartel Office must have previously shown that further mergers in the sector under investigation may significantly impede competition.
What to Bear in Mind:
In future, international merger filing requirements will not always indicate a check for German merger control. Despite the increase in domestic turnover thresholds, one should not forget that in the previous amendment, the legislator added an alternative set of thresholds also taking into account the value of the transaction (> EUR 400 million). Therefore, the acquisition of targets with German annual turnover below EUR 17.5 million may still lead to a notification requirement in Germany, provided the overall size or business expectations of the target have resulted in a sufficiently high value of the consideration to be given by the acquirer.
German merger control filing requirements still contain other potential pitfalls. This includes a very wide concept of joint venture (including non-full-function joint ventures), where, in addition to the acquirer, the revenues of other or existing (25%+) shareholders may also potentially have to be taken into account for assessing merger filing requirements (see our previous blog post).
As the ARC Digitisation Act entered into force much faster than previously expected and the new thresholds were introduced last minute, a number of transaction agreements that were concluded around the turn of year may include a condition precedent for German merger control based on the “old” turnover thresholds or based on the expectation of a smaller increase. To avoid unnecessary interaction with the Federal Cartel Office, it may be advisable to conclude a supplementary agreement between the transaction parties to waive this specific condition precedent.
Finally, it should be noted that the Federal Cartel Office is well known for being one of the most active competition authorities in Europe and worldwide. The President of the Federal Cartel Office announced on the day of entry into force of the ARC Digitisation Act that the authority will focus its freed-up resources with greater intensity on the “really critical cases”. Whether this will lead to more detailed merger investigations in Phase I, more willingness to open Phase II investigations or even additional cartel or abuse of market power investigations, remains to be seen.
