Merger control in corporate acquisitions

Which transactions are considered to be a merger?

Merger control does not cover only traditional mergers. A concentration may, in particular, arise where one undertaking acquires all or a substantial part of the assets of another undertaking, gains control of another undertaking, or exceeds certain shareholding thresholds. Under German law, the acquisition of 25 or 50 per cent of the share capital or voting rights – and, under certain conditions, a significant influence on competition – may already be relevant.

In the case of joint ventures, the decisive factor is whether joint control arises. At EU level, a joint venture must also fulfil all the functions of an autonomous economic entity on a lasting basis for its formation to be classified as a concentration falling under EU merger control. In addition, the cooperation between the parent companies must be assessed under competition law.

Multi-stage acquisitions, option rights, convertible instruments and interrelated sub-transactions may also need to be considered together. The analysis should therefore be based on the complete contractual and governance structure, and not merely on the title of the purchase agreement.

When is notification to the Federal Cartel Office required?

The general German turnover thresholds under Section 35 of the German Act against Restraints of Competition (GWB) are met if the undertakings concerned together achieved a worldwide turnover of more than 500 million euros in the last financial year, one of the undertakings involved has achieved a turnover of more than 50 million euros in Germany and another of the undertakings involved has achieved a turnover of more than 17.5 million euros in Germany. For the purposes of the calculation, buyers and the target company are not considered in isolation. As a general rule, the turnover of the respective affiliated groups of undertakings is decisive.

Domestic turnover must be allocated in accordance with the rules of the GWB. For goods, the customer’s location is generally decisive; for services, the allocation depends on the nature of the service. The calculation can be particularly challenging in the case of digital business models, platforms, financial services and cross-border contracts.

In addition to the general thresholds, there are special rules for certain sectors and categories of cases. The turnover analysis should therefore not be taken directly from the latest consolidated financial statements without verification.

When does the German transaction value threshold apply?

Even if the second domestic turnover threshold is not met, notification may still be required on the basis of the transaction value. The rule is aimed at companies whose competitive significance is not yet reflected in high turnover figures, such as those with innovative or data-driven business models.

The requirements are a combined global turnover of more than 500 million euros, domestic turnover of more than 50 million euros for one of the undertakings involved, a consideration value of more than 400 million euros, and significant operations of the target company in Germany. The consideration extends beyond the cash purchase price paid at closing. Depending on the structure, assumed liabilities, variable purchase price components, options and other economic benefits may need to be included.

The requirement for significant domestic operations calls for a qualitative and quantitative assessment. User numbers, research and development activities, location, customer relationships or data holdings may all play a role. A purely formal German company with no relevant market activity is not automatically sufficient.

When does the European Commission have jurisdiction?

The EU Merger Regulation applies to mergers of Union-wide significance. The first threshold requires the combined worldwide turnover of the undertakings involved to exceed five billion euros and the EU-wide turnover of at least two of the undertakings involved to exceed 250 million euros each. Jurisdiction generally does not apply if each undertaking involved generates more than two-thirds of its EU turnover in a single Member State.

In addition, there is a second set of thresholds, which is more widely distributed across several Member States. Among other things, this requires a total worldwide turnover of more than 2.5 billion euros, specific aggregate and individual turnovers in at least three Member States, and an EU-wide turnover of more than 100 million euros for at least two of the undertakings involved. The two-thirds exception applies here too.

If a transaction meets the EU thresholds, the ‘one-stop shop’ principle generally applies: the European Commission examines the merger instead of parallel national notifications within the European Economic Area. However, the EU Merger Regulation contains several referral mechanisms. Under Article 4(4) of the Merger Regulation, the parties may, prior to notification, request that a concentration with EU-wide significance be referred, in whole or in part, to a Member State. Conversely, Article 4(5) of the Merger Regulation allows for the referral to the Commission, prior to notification, of a proposed transaction that is not of Union-wide significance but is notifiable in several Member States. Following a notification, the Commission may refer a case to a Member State under Article 9 of the Merger Regulation. Article 22 of the Merger Regulation also permits, subject to certain conditions, a referral from one or more Member States to the Commission. Since the ECJ judgment of 3 September 2024 in Joined Cases C-611/22 P and C-625/22 P, the Commission may not, however, base an Article-22 application on the grounds of the jurisdiction of a Member State whose authority is not permitted to examine the concentration under its own national law. In the case of cross-border transactions, an overview of all potentially relevant merger control regimes and referral options should therefore be drawn up at an early stage.

How does the procedure at the Federal Cartel Office work?

Under Section 39(1) of the German Act against Restraints of Competition (GWB), mergers subject to notification must be notified to the Federal Cartel Office prior to their completion. Under Section 39(2) of the German Act against Restraints of Competition (GWB), the obligation to notify generally rests with the undertakings involved in the concentration and, in the cases of acquisition specified therein, also with the acquirer. The notification is usually submitted after the signing of the agreement; however, in the case of a sufficiently detailed plan, it may be prepared in advance and, subject to the statutory requirements, submitted even before the contract is concluded. A complete notification is a prerequisite for the time limit to run reliably. In straightforward cases, the Federal Cartel Office reaches a decision during the initial review phase within one month of receiving the complete notification.

If further competition-related issues arise, the Office may initiate a main review procedure. In such cases, the statutory decision period is generally five months from receipt of the complete notification. Extensions of time limits and suspensions are possible subject to the statutory conditions. Preliminary notifications and informal discussions may be useful in complex markets, but they extend the actual period prior to the formal start of the time limit.

The purchase agreement should therefore not be scheduled solely on the basis of the formal Phase I deadline. Market definition, data collection, translation, the completeness of the notification and any queries that may arise determine the actual critical path.

How does the procedure work at the European Commission?

EU notifications are regularly coordinated with the Commission during a pre-notification phase. Only once the Commission considers the information submitted to be sufficient is a formal notification made. This informal preparation can be brief in straightforward cases, but may require considerable lead time in complex markets.

Following formal notification, the Commission generally reaches a decision in Phase I within 25 working days. If commitments are offered at an early stage, the deadline is extended. If the Commission initiates an in-depth Phase II investigation, the standard deadline is 90 working days and may be extended under certain conditions.

The transaction timetable should therefore distinguish between the statutory review period and the actual duration of the proceedings. It is not possible to reliably commence an EU notification only a few days before the planned closing date.

What does the prohibition on implementation mean?

Mergers subject to notification may not be implemented prior to authorisation. This ‘gun-jumping’ prohibition, enshrined in Section 41 of the German Act against Restraints of Competition (GWB) and Article 7 of the EU Merger Regulation, applies not only to the formal transfer of shares. A de facto anticipation of control may also be prohibited, for example where the purchaser is already determining key business decisions, exercising management powers or integrating the target company economically into its group.

The purchase agreement may require the target company to conduct its business in the ordinary course until closing and may make extraordinary measures subject to approval. However, these protective rights must be limited to preserving the value of the transaction. They must not transfer day-to-day commercial control to the purchaser.

A breach may result in fines, the civil law invalidity of implementation measures and divestiture measures. The authorities are increasingly treating premature implementation as a separate breach, even if the transaction is subsequently approved.

What information may be exchanged prior to closing?

Buyers and sellers require information for due diligence, purchase price financing, regulatory filings and integration planning. However, until closing, they remain legally separate entities and are often competitors. The exchange of competitively sensitive information may therefore breach not only the prohibition on early execution but also competition law.

Particularly sensitive information includes current or future prices, margins, individual customer offers, production volumes, strategic planning and specific sales measures. Such information should only be disclosed if it is necessary for the transaction and is protected by appropriate safeguards. Clean teams, external advisers, redacted documents and aggregated or historical data limit the circle of recipients and prevent operational decision-makers from using the information in ongoing competition.

Integration planning may prepare scenarios and measures for the period following closing. However, implementation must wait until approval has been granted. Joint customer approaches, coordinated pricing decisions or the actual merging of functions are generally prohibited prior to closing.

How is merger control dealt with in the purchase agreement?

The sale agreement should specify the necessary approvals as conditions precedent and set out which party is responsible for filing the notifications. The other party must provide the necessary information and cooperate in responding to enquiries. Where multiple jurisdictions are involved, a coordinated strategy is required to ensure that the factual presentation, market definition and proposed commitments remain consistent.

The risk clause specifies which remedial measures the buyer must accept. A general obligation to take ‘all measures’ could, in extreme cases, even encompass the sale of key business units. For this reason, economic limits or measures that are expressly excluded are often defined. Where there is a high level of regulatory risk, break fees, extended long-stop dates or special termination rights may be considered.