Austria: The Devil Is In The Details - Transaction Value Draft Guidelines

Last Updated: 26 June 2018
Article by Dieter Hauck

In 2017 Germany and Austria implemented an additional merger threshold, catching cases that fall below existing turnover thresholds but the consideration for the transaction exceeds EUR 200 million (Austria) or EUR 400 million (Germany), respectively, and the target is active in the respective country to a significant extent. First cases and legal discussions showed that there is considerable uncertainty as to some not at all minor details in the application of these rules. It seems that the legislators have not fully considered all basics and consequences. However, in a unique and praiseworthy effort, the German Bundeskartellamt1 and the Austrian Bundeswettbewerbsbehörde2 have now published joint draft guideline on the application of the new, short and nonetheless quite difficult piece of legislation. These draft guidelines are published on the respective websites of the Competition Authorities, inviting consultations until June 8, 2018. Even English versions are available. Obviously, these draft guidelines reflect the opinions of the Authorities and cannot bind national Courts that may have to rule on individual transactions.

The draft guidelines deal with three major issues:

  1. The calculation and documentation of the consideration:

    • Consideration is defined quite extensively, covering money, shares or all other assets, present, future, conditional or unconditional, and liabilities accepted by the purchaser;
    • Liabilities accepted by the purchaser must be added up to the consideration. The Authorities believe any liability bearing interest, if shown in the balance sheet of the target, has to be considered as part of the consideration;
    • Only the consideration for the specific transaction shall be relevant, there are cases discussed, where several transactions must be considered as one transaction;
    • Parties are free to use accepted methods of evaluation and calculation, provided these methods and their application are transparent and sufficiently documented.
    • The evaluation must be done at the point of implementation of the merger;
    • The current value of future payments shall be calculated on the basis of discounting methods commonly used in the financial sector and Payments made during the financial year may be combined into annual payments;
    • Future payments can be weighted according to their probabilities if these probabilities and their underlying assumptions are sufficiently explained and documented;
    • If the value of the consideration for a merger project was determined according to the guideline and a merger was considered exempt from notification as a result, the notification requirement will not be reinstated if the components of the consideration value that had already been taken into account change in value after the mergers put into effect.
    • Special rules apply to the formation of a new joint venture or amalgamations.
  2. Substantial domestic operations

    • It may be different from case to case which criteria is applied to measure domestic operation, and normally it should not be domestic turnover;
    • In Austria the location of the target company may have an impact to the extent the activities of this site have domestic market operation. Research and development activities can also constitute a relevant activity.
    • Domestic activities must be current, only future or anticipated activities are not sufficient. However, domestic activity is also deemed "current" if it is carried out for the purpose of market entry, e.g. a drug approval on the domestic market.
    • Generally, for the assessment of local nexus an activity is attributable to the place of intended use, which normally is where the customer is located.
    • The significance of domestic activities may be judged differently from case to case or industry sector to industry sector, since no quantitative limits have been defined by the laws.
    • If turnover is found to adequately reflect the market position and competitive potential of target, the German Bundeskartellamt will not find that significant, if this turnover is below EUR 5 million in Germany. This must be seen with reference to a similar de minimis threshold for targets in the German law.
    • Regrettably, also in Austria turnover may be a significant factor, but in contrast to Germany, lawmakers in Austria have not set an absolute threshold of EUR 5 million.
  3. The concept of concentration

    The new laws by eliminating the necessity that target has at least some turnover, may have a significant impact on the very concept of concentration. While this makes no difference if company shares are bought, it might make a significant difference, in case of an acquisition of individual assets as part of an asset deal. Under present case law, the acquisition of assets is only relevant if the assets are purchased in full or to a substantial extent meaning the asset had to offer the possibility for the buyer to assume the existing market position of the seller. This criterion of existing market position potentially can no longer be maintained unreservedly. In this highly complex question, however, a final confirmation by the Courts may be necessary.

  4. Conclusion:

    These unique and highly commendable draft guidelines as published by the Austrian Bundeswettbewerbsbehörde and the German Bundeskartellamt do significantly reduce the uncertainties of the new laws. However, - not totally unexpected – they are not able to fully eliminate such uncertainties. While for many Parties to a transaction and their lawyers lives become a bit easier, some difficult questions still need final clarification in Court procedures. This may occur, where the judgment by the Parties gives rise to the conviction that a merger does not need to be notified to the Competition Authorities, who then may take a different opinion....

Footnotes

1 www.bundeskartellamt.de

2 www.bwb.gv.at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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