The German government
has recently published a bill that would significantly amend
the criteria for determining whether an M&A transaction is
subject to German merger control.
Currently, the applicability of the German merger control rules
depends primarily on the revenues of the firms participating in a
transaction. A concentration needs to be notified to the German
competition authority – the Bundeskartellamt –
where all the following three turnover thresholds are met: (i) EUR
500 million worldwide, (ii) EUR 25 million in Germany, and (iii)
EUR 5 million in Germany. The 500 million threshold (i) refers to
the sales achieved by all of the parties combined in their last
completed financial year. The other two thresholds (ii) and (iii)
refer to the individual sales of two parties to the transaction
(e.g., the acquirer, on the one hand, and the business being
acquired, on the other). Where the notification thresholds are met,
the parties are subject to a standstill obligation. They must not
consummate the transaction until it has been cleared (or is deemed
to have been cleared) by the Bundeskartellamt.
The purpose of merger notification thresholds is to screen out
transactions that are unlikely to result in anticompetitive effects
and should not, therefore, be subject to costly and time-consuming
notification procedures. When Germany introduced its first merger
control rules in 1973, market shares and the number of employees
were used alongside the parties' turnover as notification
criteria. However, market share data is notoriously unreliable
since it depends on subjective views of what is the relevant
market. And, in many industries, employee numbers are not
indicative of the economic significance of a firm. By contrast, the
turnover criterion is now generally recognised as a suitable
indicator for measuring the economic strength of a firm since it is
directly linked to its performance in the market. It is also in
line with the recommendations for merger notification procedures of
the International Competition Network: turnover thresholds are
relatively clear and are based on objectively quantifiable
criteria, and the required information is readily accessible to the
parties. For these reasons, many jurisdictions, especially in
Europe, use turnover criteria for determining whether or not a
transaction should be reviewed by the authorities. A notable
exception is, of course, the U.S. where the Hart-Scott-Rodino
Antitrust Improvements Act focuses on the transaction value, i.e.,
the value of assets, voting securities or non-corporate interests
that the acquirer will hold as a result of the transaction.
However, the prevailing view on turnover as the most suitable
notification test has been questioned in Germany since Facebook
acquired WhatsApp in 2014. Despite a record purchase price of USD
19 billion and despite the high number of users that both companies
have in Europe, the deal almost escaped scrutiny by the European
competition authorities. In the end, the European Commission was
able to carry out a merger review solely because Facebook requested
such a review of its own volition. For the German government, this
transaction has shown that an "enforcement gap" exists in
the current system. To close the gap, it now proposes to introduce
a new test that would coexist with the current turnover based
notification thresholds. Under the new test, a concentration would
have to be notified to the Bundeskartellamt if:
the combined aggregate worldwide
turnover of all the undertakings concerned was more than EUR 500
million in the last financial year preceding the concentration,
the German turnover of at least one
undertaking concerned was more than EUR 25 million in the last
financial year preceding the concentration, and
the value of the consideration for
the concentration is more than EUR 350 million, and
at least one undertaking concerned
other than (ii) is active or is expected to be active in
The term "value of the consideration" used in (iii) is
defined as "all assets and services of a monetary value that
the seller receives from the acquirer in connection with the
concentration". Unlike the size-of-transaction test used in
the U.S., this test does not take into consideration the value of
interests that the acquirer already holds in the acquired business
prior to the concentration.
The new bill was published on 1 July 2016. It still has to go
through the parliamentary process where it may be subject to
changes. Currently, it is expected that the new rules will come
into force at the beginning of 2017.
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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