Merger Control in an Acquisition

Which transactions constitute a concentration?

Merger control covers not only classic mergers. A concentration may exist in particular where an undertaking acquires the assets of another undertaking in whole or in substantial part, obtains control over another undertaking or exceeds certain shareholding thresholds. Under German law, even the acquisition of 25 or 50 per cent of the capital or voting rights and, under certain conditions, a competitively significant influence may be relevant.

In the case of joint ventures, it depends on whether joint control arises. At EU level, a joint venture must additionally perform on a lasting basis all the functions of an autonomous economic entity for its creation to fall as a concentration under EU merger control. In addition, the cooperation of the parent companies remains to be examined under competition law.

Multi-stage acquisitions, option rights, conversion instruments and interlinked partial transactions may also fall to be considered together. The analysis should therefore be carried out on the basis of the complete contractual and governance structure and not merely on the basis of the heading of the purchase agreement.

When is a notification to the Federal Cartel Office required?

The general German turnover thresholds under Section 35 GWB are reached where the undertakings concerned together achieved worldwide turnover of more than EUR 500 million in the last financial year, one undertaking concerned achieved more than EUR 50 million turnover in Germany and a further undertaking concerned achieved more than EUR 17.5 million turnover in Germany. The calculation looks beyond the buyer and the target company. As a rule, the turnover of the respective affiliated corporate groups is decisive.

Domestic turnover must be allocated under the rules of the GWB. For goods, the place of the customer is regularly decisive. For services, the allocation depends on the nature of the performance. Precisely in the case of digital business models, platforms, financial services and cross-border contracts, the calculation can be demanding.

In addition to the general thresholds, there are special rules for certain sectors and case groups. The turnover analysis should therefore not be adopted unexamined from the last consolidated financial statements.

When does the German transaction-value threshold apply?

Even where the second domestic-turnover threshold is not reached, a notification may be required on account of the transaction value. The rule targets undertakings whose competitive significance is not yet reflected in high turnovers, for example in the case of innovative or data-driven business models.

The prerequisites are combined worldwide turnover of more than EUR 500 million, domestic turnover of more than EUR 50 million for one undertaking concerned, a value of the consideration of more than EUR 400 million and substantial activity of the target undertaking in Germany. The consideration does not comprise only the cash purchase price paid at closing. Depending on the structure, assumed liabilities, variable purchase-price components, options and further economic performances may fall to be included.

The requirement of substantial domestic activity calls for a qualitative and quantitative assessment. User numbers, research and development activities, location, customer relationships or data holdings may play a role. A purely formal German company without relevant market activity is not, without more, sufficient.

When is the European Commission competent?

The EU Merger Regulation applies to concentrations with a Union dimension. The first combination of thresholds requires combined worldwide turnover of the undertakings concerned of more than EUR 5 billion and EU-wide turnover of more than EUR 250 million each for at least two of the undertakings concerned. Competence is in principle excluded where each undertaking concerned achieves more than two-thirds of its EU turnover in one and the same Member State.

In addition, there is a second combination of thresholds distributed more strongly across several Member States. It presupposes, among other things, combined worldwide turnover of more than EUR 2.5 billion, certain combined and individual turnovers in at least three Member States as well as EU-wide turnover of more than EUR 100 million each for at least two of the undertakings concerned. The two-thirds exception applies here too.

Where a transaction reaches the EU thresholds, the one-stop-shop principle applies in principle: the European Commission examines the concentration in place of parallel national notifications within the European Economic Area. The EU Merger Regulation contains, however, several referral mechanisms. Under Article 4(4) EUMR, the parties may, before notification, request that a concentration with a Union dimension be referred in whole or in part to a Member State. Conversely, Article 4(5) EUMR allows, before notification, the referral to the Commission of a project notifiable in several Member States without a Union dimension. After a notification, the Commission may refer to a Member State under Article 9 EUMR. In addition, Article 22 EUMR permits, under its conditions, a referral from one or more Member States to the Commission. Since the judgment of the Court of Justice of the European Union 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 request on the competence of a Member State whose authority may not examine the concentration under its own national law. In cross-border transactions, an overview of all potentially affected merger-control regimes and referral options should therefore be prepared early.

How does the procedure before the Federal Cartel Office proceed?

Under Section 39(1) GWB concentrations subject to notification are to be notified to the Federal Cartel Office before their implementation. Under Section 39(2) GWB the obligation to notify lies, as a rule, with the undertakings participating in the concentration and, in the acquisition cases mentioned there, also with the buyer. The notification is regularly submitted after signing, but where a project is sufficiently concretised it may be prepared beforehand and, under the statutory conditions, also submitted before conclusion of the contract. A complete notification is the prerequisite for a reliable running of the time limit. In uncomplicated cases, the Federal Cartel Office decides in the first examination phase within one month of receipt of the complete notification.

Where more far-reaching competitive questions exist, the office may open a main examination procedure. The statutory decision period is then, as a rule, five months from receipt of the complete notification. Extensions and suspensions of the time limit are possible under the statutory conditions. Pre-notifications and informal discussions can be sensible in complex markets, but extend the actual period before the formal start of the time limit.

For the purchase agreement, therefore, not only the formal Phase I period should be assumed. The market definition, the gathering of data, translation, the completeness of the notification and possible queries determine the real critical path.

How does the procedure before the European Commission proceed?

EU notifications are regularly coordinated with the Commission in a pre-notification phase. Only once the authority regards the information submitted as sufficient is formal notification made. This informal preparation can be short in simple cases, but may require considerable lead time in complex markets.

After formal notification, the Commission decides in Phase I, as a rule, within 25 working days. Where commitments are offered early, the period is extended. Where the Commission opens an in-depth Phase II examination, the regular period is 90 working days and may be extended under certain conditions.

The transaction timetable should therefore distinguish between the statutory examination period and the actual duration of the procedure. An EU notification cannot reliably be begun only a few days before the planned closing.

What does the prohibition on implementation mean?

Concentrations subject to notification may not be implemented before clearance. This gun-jumping prohibition, anchored in Section 41 GWB and Article 7 of the EU Merger Regulation, concerns not only the formal transfer of the shares. A de facto anticipation of control may also be impermissible, for example where the buyer already determines material business decisions, exercises management powers or economically integrates the target undertaking into its group.

The purchase agreement may oblige the target undertaking to ordinary management until closing and make extraordinary measures subject to consent. These protective rights must, however, remain limited to preserving the value of the transaction. They may not transfer to the buyer the ongoing commercial steering.

An infringement may entail fines, the civil-law invalidity of implementation acts and demerger measures. The authorities increasingly pursue premature implementation as a separate infringement, even where the transaction is later cleared.

What information may be exchanged before closing?

Buyer and seller need information for due diligence, purchase-price financing, notification to the authority and integration planning. Until closing, however, they remain legally independent undertakings and frequently competitors. The exchange of competitively sensitive information may therefore, alongside the prohibition on implementation, also touch the prohibition on anticompetitive agreements.

Particularly sensitive are current or future prices, margins, individual customer offers, production volumes, strategic plans and specific distribution measures. Such information should be disclosed only where it is necessary for the transaction and safeguarded by suitable protective mechanisms. Clean teams, external advisers, redacted documents as well as 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 after closing. Implementation must, however, wait until clearance. Joint approaches to customers, coordinated pricing decisions or the actual merging of functions are regularly impermissible before closing.

How is merger control regulated in the purchase agreement?

The purchase agreement should name the required clearances as conditions to closing and determine which party leads the notifications. The other party must provide the necessary information and cooperate with queries. Where several jurisdictions are involved, a coordinated strategy is needed so that the presentation of facts, market definition and offers of commitments remain consistent.

The risk clause determines which remedies the buyer must accept. A general obligation to take "all measures" may, in the extreme case, also cover the sale of material business divisions. Economic limits or expressly excluded measures are therefore frequently defined. Where the regulatory risk is high, break fees, extended long-stop dates or special rights of termination come into consideration.