In a highly unusual decision for Germany's Federal Cartel
Office (FCO), on December 15, 2008, the agency imposed a fine of
€4.5 million against U.S. company Mars, Inc. for violating
the bar to closing in Germany pending the completion of the German
merger review process. This is the first such fine applied to a
transaction between two non-German companies.
In 2007, Mars announced its intention to acquire the global pet
food operations of Nutro Products, Inc. After obtaining from U.S.
authorities approval to proceed with the transaction, Mars closed
the transaction by carving out the German and Austrian distribution
business, but without first awaiting local merger control approval.
In Germany, prior FCO clearance is mandatory before any transaction
that satisfies the German merger reporting thresholds may be
completed. Pending the proposed introduction of a second domestic
turnover threshold in the German antitrust law, Germany today has a
fairly expansive merger reporting system, which requires a
significant number of essentially foreign transactions to be
notified, as long as the transaction is likely to have certain
domestic market effects, which are often deemed to exist by the
German agency to the extent that one of the parties meets the
domestic sales threshold of €25 million. In this case,
Mars argued that it should have been free to complete the
acquisition, having entered into a hold-separate agreement with
Nutro Products relating to Nutro Product's distribution rights
in Germany and Austria. The FCO rejected Mars' argument,
asserting that Mars had, by gaining control over the assets and
trade names of Nutro Products, actually effectively transferred the
target's business to Mars.
Fines for failure to comply with premerger notification
requirements are anything but novel in the United States, where the
Department of Justice and Federal Trade Commission actively pursue
companies for "gun jumping" violations. The FCO's
decision against Mars reflects a marked deviation from the
agency's historical lenient approach to essentially foreign
transactions. Not only is the €4.5 million fine the
highest ever imposed by the German agency for closing a transaction
before completing the German merger review process, but it
represents the first fine in this context calculated on the basis
of the agency's 2006 fining guidelines. The fine was reduced to
account for Mars' active cooperation with the agency in
eliminating residual market effects of the transaction in Germany.
Perhaps even more important, this is the first such fine imposed
for a foreign-to-foreign transaction, both parties being U.S.
businesses. The target did not own any fixed assets in Germany, but
generated its German and Austrian sales through independent
distributors, which sold product to local pet specialty and farm
and feed stores. All of Nutro Products production facilities are
located in the United States, the company's largest market.
This Federal Cartel Office decision demonstrates that gun
jumping violations will no longer go unnoticed in Germany, even if
they involve solely foreign parties. The decision still is subject
to appeal to the Higher Regional Court in Düsseldorf.
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