Unlike the disclosure obligation with regard to merger prerequisites, important mergers as defined in =A7 24a, para. 1 of the German Restrictive Practices Act must be initially reported to the Federal Cartel Authority in the form of projects. This reporting obligation applies if a company involved in a merger achieved worldwide sales of at least DM 2 billion in its previous financial year or if two companies involved in a merger both achieved sales of DM 1 billion or more in their previous financial years or if the merger is to be effected due to a sovereign act.

The purpose of this ruling is to prevent a market dominant position of the combined companies being achieved or intensified as a result of the merger. Jurisdiction defines this market dominant position as a predominantly unilateral ability to develop market strategies or to apply individual action parameters. The aim is to prevent companies not only being dependent on the action parameters of price and quality in the development of market strategies but also having additional strategies available to them by virtue of their extraordinary financial strength unlike their competitors. This situation normally arises if the merged company is able to change the market substantially by means of its terms and conditions of business or sales connections. An indication of this is, for example, if a merged company is able to fix its prices at will without running the risk of damaging its market position significantly. In view of the fact that the establishment of market dominant circumstances is possible in many respects in the case of mergers of the aforesaid order of magnitude, legislators have considered it meaningful to examine company mergers in each individual case. In the case of such mergers subject to reporting procedures, the Federal Cartel Authority has the right to reject reported mergers within a period of 4 months. If the parties concerned reject the execution ban of the Federal Cartel Authority, the merger is suspensively invalid. If the merger is finally and conclusively rejected by the Federal Cartel Authority, the merger, and thereby the sale of the company, is invalid.

The legal situation is different in the case of company sales which are only subject to disclosure procedures. If the Federal Cartel Authority established that a market dominant position has arisen or is intensified as result of an acquisition of all assets or the major assets of another company in the case of a sale subject to disclosure procedures, it is able to reject the disclosed merger within a period of one year in accordance with =A7 23 of the German Restrictive Practices Act. Upon the issue of this rejection, the parties concerned are granted a reasonable period for invalidating the merger. The parties concerned are able to effect the most financially advantageous sale possible. Invalidation is not possible if the parties concerned have completely reversed the acquisition of shares by virtue of a formal agreement or have reduced the acquisition to the admissible level so that there is no longer a merger prerequisite within the meaning of =A7 23, para. 1, nos. 1 5 of the Restrictive Practices Act.

Unlike the legal consequences of an execution ban or a rejection of a company sale which is subject to reporting procedures, a transfer of assets or acquisition of shares remains valid under civil law if the Federal Cartel Authority rejects the sale of a company subject to disclosure procedures. An acquisition which has not been finally and conclusively executed is invalid, however; the amalgamation, conversion or integration of a company is valid if the relevant entry has been made in the trade and commercial registry.

For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.

You may also wish to read through related Wessing Berenberg-Gossler Zimmermann Lange. You can view the entire archive via the Internet on Business Monitor Online (http://www.businessmonitor.co.uk), or via your online provider by entering "Wessing Berenberg-Gossler Zimmermann Lange" and "Business Monitor" as a free text search.

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.