TerraLex Cross-Border Guide to Pre-Merger Notification Guide

Yes.

No.

The mandatory notification system catches concentrations (i) that exceed certain turnover thresholds (see 4.) and/or (ii) where a party other than a seller has been ordered to notify every concentration with other undertakings (see below in this section). Concentrations are defined as follows:

• the acquisition of all or of a substantial part of the assets of another undertaking;
• the acquisition of direct or indirect control by one or several undertakings of the whole or parts of one or more other undertakings; control is constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular through
• ownership or the rights to use all or part of the assets of the undertaking,
• rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of the undertaking;
• the acquisition of shares in another undertaking if the shares, either separately or together with other shares already held by the undertaking, reach or exceed 50% or 25% of the capital or the voting rights of the other undertaking; the shares held by the undertaking also include the shares held by another for the account of this undertaking and, if the owner of the undertaking is a sole proprietor, also any other shares held by him; if several undertakings simultaneously or successively acquire shares in another undertaking to the extent mentioned above, this is deemed to also constitute a concentration among the acquiring undertakings with respect to those markets on which the other undertaking operates; and
• any other combination of undertakings enabling one or several undertakings to directly or indirectly exert a competitively significant influence on another undertaking; a concentration also arises if the participating undertakings had already merged previously, unless the concentration does not result in a substantial strengthening of the existing affiliation between the undertakings.

Please note that a pool of assets may qualify as an undertaking, even if that pool of assets has not yet produced any revenue.

Exception for Trading: If credit institutions, financial institutions or insurance undertakings acquire shares in another undertaking for the purpose of reselling such shares, this is not deemed to constitute a concentration as long as they do not exercise the voting rights attached to the shares and provided the resale occurs within one year ("banking clause"). The Bundeskartellamt may upon application, extend this time limit if the undertakings can substantiate that the resale was not reasonably possible within this period.

Request for Notification of Future Concentrations: The Bundeskartellamt may order by formal decision that an undertaking is to notify every concentration with other undertakings in one or several specific sectors of the economy if

1. the worldwide turnover of the undertaking concerned was more than EUR 500 million in the last business year,
2. there are objectively verifiable indications that future concentrations could substantially impede effective competition in Germany in the sectors of the economy specified, and
3. in Germany, the undertaking supplies or procures at least 15 per cent of the goods or services in the sectors of the economy specified.

The obligation to notify the Bundeskartellamt pursuant shall apply only to concentrations where the undertaking to be acquired achieved a turnover of more than EUR 2 million in the last business year and achieved more than two thirds of its turnover in Germany. The formal decision has a term of three years.

A concentration with effects on the German market is subject to merger control where in the last business year preceding the concentration

• the combined aggregate worldwide turnover of all participating undertakings was more than €500 million, and
• the domestic (German) turnover of at least one participating undertaking was more than €50 million and of a second participatingundertaking was more than €17.5 million,

except if

• the concentration concerns the merger of public bodies, institutions or undertakings in connection with a territorial reform, or
• all participating undertakings (i) are members of an association of undertakings in the banking industry, (ii) essentially provide services for the undertakings that are members of that group, (iii) do not maintain any contractual relationships to end users on their own, and (iv) the concentration is not a concentration between central banks or between clearing houses.

A concentration with effects on the German market is also subject to merger control where in the last business year preceding the concentration when:

• the combined aggregate worldwide turnover of all participating undertakings was more than €500 million, and the domestic (German) turnover of one participating undertaking was more than €50 million, and
• neither the target undertaking nor any other participating undertaking has generated domestic (German) turnover exceeding €17.5million each, and
• the value of the consideration for the concentration exceeds €400 million, and the target undertaking’s operations in Germany are significant,

except if

all participating undertakings (i) are members of an association of undertakings in the banking industry, (ii) essentially provide services forthe undertakings that are members of that group, (iii) do not maintain any contractual relationships to end users on their own, and (iv) the concentration is not a concentration between central banks or between clearing houses.

The turnover is calculated as follows:

• for the trade with goods only 75% of the turnover shall be considered;
• for publishing, producing and distributing newspapers, magazines and parts thereof 400% of the turnover shall be considered, and for producing, distributing and broadcasting radio and television programs and selling radio and television advertising time, 800%of the turnover shall be considered.

Specific rules also exist for credit institutions, financial institution and building and loan associations as well as insurance companies.

The value of the consideration is the sum of all assets and other benefits-in-kind that the seller receives from the purchaser in connection with the concentration plus the value of any payables that the purchaser took over from the seller.

Joint ventures are caught by the mandatory German notification system if at least two undertakings of different groups of undertakings shall hold 25% of the capital or votes or more, regardless of the type of joint venture. No difference is made between full-function joint ventures or non-full-function joint ventures or between newly created joint ventures or joint ventures created by the taking in an additional shareholder. A joint venture is considered both a merger between each shareholder group of undertakings and the joint venture and among the participating groups of undertakings.

As noted at item 4 the specified turnover thresholds in Germany must be met. In addition, the merger needs to take potential effect on the German market. Mergers of two undertakings meeting the turnover thresholds are per se supposed to have potential effects on the German market. The same applies to joint ventures, if the turnover thresholds are met and the joint venture company meets or plans to meet the turnover threshold of EUR 5 million in Germany. A joint ventures is not deemed to have potential effects on the German market, if (i) the joint venture is neither currently nor potentially active on the German market, and (ii) not more than one parent company of the joint venture including its affiliates is active in the same domestic relevant product market that the one on which the joint venture is active abroad, and (iii) not more than one parent company is a potential competitor on this market either, and (iv) not more than one parent company is an actual competitor in a domestic market upstream or downstream of the joint venture’s product market abroad. For all other case scenarios, it will depend on the circumstances of each individual case whether they can be expected to have sufficient domestic effects.

Where only one participating undertaking meets the turnover thresholds in Germany, but the value of the consideration meets the relevant threshold, the target undertaking’s operations in Germany have to be significant.

Required information: - identity, type of business, turnovers in Germany, the European Union and worldwide turnovers of the undertakings that intend to merge and its affiliates;

• identity of the seller in case of an asset or share deal;
• indication of the form of concentration;
• market shares of the undertakings that intend to merge and its affiliates, including the basis for their calculation or estimate, if their combined market shares amount to a minimum of 20 percent in Germany or a substantial part of Germany;
• in case of a of a share deal, indication of the size of interest that is acquired and held in total,
• intra-group relationships, control relationships among and interests held by affiliated undertakings, if applicable;
• indication of a process agent for undertakings whose the registered seat is not located in Germany;
• preferably contracts, on which a concentration is based;
• information supporting the evaluation that the concentration is not expected to create or strengthen a dominant market position or that the concentration will nevertheless lead to improvements of the conditions of competition that will outweigh the disadvantages of dominance;
• in cases where only one participating undertaking meets the turnover thresholds in Germany, but the concentration requires filing, because the consideration meets the relevant threshold and the target undertaking’s operations in Germany are significant:
• the value of the consideration and the details required to calculate that value; and
• details on the extent and nature of the target undertaking’s operations in Germany.

In simple cases, where no anti-competitive effects on the German market are expected, the required information can typically be compiled within one or two weeks. In case of mergers involving big groups of companies, numerous markets or undertakings with strong market positions, detailed market examinations might be necessary that require more time.

Basically no. In specific cases, the Bundeskartellamt might however abstain from requiring detailed information on foreign affiliated undertakings that evidently cannot have any relevance for the market strength of the involved group of companies in Germany.

Yes. The filing fee can be fixed to amounts of up to €50,000 and under exceptional circumstances of up to €100,000 in the discretion of the Bundeskartellamt. For average cases regarding size of the undertakings involved and complexity of the matter, a fee of approximately €25,000 is regarded as adequate. In small and evident cases, the filing fee may also be fixed to small amounts well below €10,000.

There is no deadline within which a notification must be filed as the closing of notifiable transactions is prohibited without clearance in any case. A filing may be effected from the moment, where a planned transaction is so specific that an examination is possible. At least the involved parties and the kind of transaction need to be defined; some details may be left open.

The transaction may not be put into effect without clearance of the Bundeskartellamt. However, to the extent a buyer acquires control, shares or another form of relevant influence from several sellers by way of a public takeover offer or otherwise through a stock exchange, the transaction may be put into effect, if it is filed with the Bundeskartellamt immediately and the buyer does not exercise its voting rights except for maintenance of the value of its investment, if this is cleared by the Bundeskartellamt.

Exemptions from the closing prohibition may be granted upon application, if important reasons exist.

Transactions without any meaningful competitive overlap are usually cleared within a maximum of one month or even faster. A transaction is deemed cleared, if the Bundeskartellamt does not inform the filing undertakings within one month of the completed filing that it has initiated the main examination proceedings.

Main examination proceedings are concluded by decision of the Bundeskartellamt, whereby a transaction is deemed cleared, if no decision is delivered within five months from the completed filing, unless the notifying undertakings have consented to an extension of the time limit, required information is not provided in time, false information was provided, or a process agent for foreign undertakings is not appointed any more. If an undertaking concerned has offered commitments with a view to rendering the concentration compatible with German merger control clearance requirements for the first time, the deadline for the Bundeskartellamt to deliver a decision is extended to six months from the completed filing.

Final clearance might be further delayed, if a clearance decision of the Bundeskartellamt is challenged within one month from delivery of the decision by a third party that is significantly affected by such clearance and has been involved in the proceedings upon application.

Legal acts that put the notifiable transaction into effect are void, except for certain kinds of acts that require entry into public registers for validation. If a transaction is notified after the closing, but would have been cleared if notified in time, the Bundeskartellamt shall open and close divestiture proceedings without a decision ordering divestment. Upon closing of the divestiture proceedings, the transaction becomes valid and may be performed. A concentration that would have been prohibited shall be dissolved unless the Federal Minister of Economics authorizes the transaction upon application, if, in a specific case, the restraint of competition is outweighed by advantages to the economy as a whole following from the concentration, or if the concentration is justified by an overriding public interest.

Closings without notification or before clearance may be punished by administrative fines up to €1 million against individuals and/or up to 10% of the total turnover of the economic unit in the preceding business year against undertakings or associations of undertakings. Minor fines may also be imposed, if the completion of the closing is not notified.

Yes, post-closing challenge after expiry of the waiting periods without challenge is possible, if clearance was based on incorrect particulars, has been obtained by means of deceit or if the undertakings concerned do not comply with an obligation attached to the clearance.

No, but post-closing challenges always depend on misconduct of the parties involved or are otherwise foreseeable, in particular if the one month period for challenges of clearance decisions by third parties has been taken into account.

The Bundeskartellamt is an independent federal authority assigned to the Federal Ministry of Economics and Technology. It has powers to prohibit anti-competitive transactions, impose administrative fines, request disclosures, perform investigations and enforce its decisions and orders. Its decisions are subject to the control of the civil jurisdiction.

The Bundeskartellamt publishes a list of all notified merger projects indicating the name of the undertakings involved, the form of concentration and the affected market. It also publishes public versions of its decisions to clear or prohibit a concentration, where business secrets may be blanked.

In addition, the initiation of main examination procedures, applications for and decisions of ministerial authorisation, withdrawals and revocations of clearances and dissolutions are notified in the (electronic) Federal Gazette, indicating the form of concentration, the undertakings involved and their type of business.

The crucial aspect for the prohibition of a merger is the assessment whether it would significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position. The assessment might require complex examinations. As a rough guideline may however serve the statutory refutable assumption that undertakings with a market share of at least 40% are dominant.

Specific rules exist for minor markets and newspaper and magazine publishing houses. The Bundeskartellamt shall not prohibit mergers:

• that only concern a market that had an overall sales volume in Germany of less than €20 million in the last calendar year, although it is not a new market meaning that goods or commercial services have been offered in such a market for at least five years are not subject to merger control, except in case the goods or services are offered for free on that market or in cases where only one participating undertaking meets the turnover thresholds in Germany, but the concentration requires filing, because the consideration meets the relevant threshold and the target undertaking’s operations in Germany are significant;
• that strengthen the dominant position of a newspaper or magazine publisher that takes over a small or medium newspaper or magazine publisher, if the parties provide proof that the target of the takeover generated significant losses in the past three years, that its existence is threatened without the takeover, and that no other buyer has been found whose takeover would not have significantly impeded effective competition.

In general, in cases where anti-competitive effects might exist or in cases of urgency, early contact to the Bundeskartellamt is often helpful

Mergers involving changes in the shareholder structure of broadcasting corporations need to be notified to the competent State Media Authorities and require approval of the German Commission on Concentration in the Media. In addition, turnover thresholds for media related mergers are significantly lower than the general thresholds.

Mergers involving buyers with residence outside the European Union and the European Economic Area that acquire directly or indirectly stakes exceeding 10% to 25% of the voting rights of a German undertaking, can be prohibited if such acquisition is likely to affect the public order or security of Germany or another Member State of the European Union. The relevant stake depends on the industry the target company is active in. In certain industries, a pre-merger notification is mandatory before closing of the transaction is allowed. In other industries, there is a voluntary notification system.

A similar mandatory notification system is in place for mergers involving non-German buyers if the German target undertaking is active in the military and defence industry or in the IT security industry relevant for classified state material.