New German turnover threshold in force, facilitating takeovers of small enterprises

06 May 2009

Dr Jörg Witting, Fabian von Busse

Germany has amended the merger control provisions in its Act against Restraints of Competition (ARC) by inserting a second domestic turnover threshold, which entered into force on 25 March 2009. Pursuant to the new version of section 35(1) of the ARC, a concentration is subject to German merger control if, in the financial year prior to the concentration: (i) the combined worldwide turnover of the parties to the concentration exceeded EUR 500 million; (ii) the domestic turnover of at least one party exceeded EUR 25 million; and (iii) the domestic turnover of another party exceeded EUR 5 million (the additional threshold).

In making this amendment, the German legislator has responded to the fact that under the previous legislation, many concentrations with a limited impact in Germany had to be notified to the Federal Cartel Office – on an average, only about 4% of the notifications led to phase two assessments. This situation caused legal and administrative fees for the companies concerned and an increased workload for the Federal Cartel Office in assessing unproblematic cases.

The adoption of a new turnover threshold aims to facilitate the takeover of small business units with a domestic turnover of up to EUR 5 million, as these takeovers will now fall outside the scope of German merger control.  Such mergers no longer have to be notified and will not be subject to subsequent investigations by the Federal Cartel Office.  This amendment may also be relevant for foreign-to-foreign mergers having only a limited effect in Germany. An example would be the merger of two large French companies, one of which achieves turnover of less than EUR 5 million in Germany. Irrespective of the other company’s activity in Germany and of possible market share accretions on the German market, such a deal would not have to be notified to the Federal Cartel Office under the new law.

On the other hand, the reform does not take into account the effects the concentration has on potential competition, which cannot be measured simply by referring to actual turnover figures. It could now be a strategic option to acquire a potential foreign competitor in order to block market entry in Germany. An example would be the takeover of a foreign company by a German dominant player in order to eliminate a potential competitor on the German market which has no or very limited turnover in Germany. Applying the new double domestic turnover threshold, the concentration would not be subject to German merger control, although the market position of the German dominant company would be strengthened by the elimination of its potential competitor.

Source: http://www.bundeskartellamt.de

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