The 9th amendment of the German Act against Restraints of Competition (“ARC”), which came into force on June 9, 2017, provides for the introduction of a size-of-transaction tests. The (global) outreach of the German merger control will be extended thereby. The amendment aims at catching large acquisitions in the digital sector which often concern target companies that lack the necessary global or domestic revenue to fall within the scope of the German merger control regime. The textbook example for such transactions is the acquisition of Whatsapp by Facebook for approx. USD 19 billion.
So far the scope of the German merger control is limited to cases in which the undertakings concerned (i.e. basically acquirer and target) exceed the global (>EUR 500 mm) as well as the domestic turnover thresholds (> EUR 25 million and > EUR 5 million). Some additional questions regarding the calculation of the revenue thresholds may arise in case the seller keeps a stake in the target, or the acquirer is a joint venture, etc.
Nevertheless, if the target's turnover does not exceed EUR 5 million in the last finished business year prior to the acquisition date, the transaction does not have to be notified, regardless of the price the acquirer has to pay.
Scope of the New Size-of-Transaction-Test.
The German legislator intends to close the supposed loophole with the new "size-of-transaction-test". From now on, transactions involving a “value of consideration” exceeding EUR 400 million trigger mandatory merger notifications in Germany, even if the "second" German domestic turnover threshold of at least EUR 5 million is not met.
The key to grasp the idea of this new test is to understand that the test will not apply any time the parties to the transaction do not meet the domestic thresholds described above. To the contrary, the test will only apply if the target's revenue in Germany do not exceed the "second" domestic threshold of EUR 5 million.
As a consequence, in case the target's revenue exceeded EUR 25 million in Germany, but the acquirer has no revenue in Germany at all or less than EUR 5 million, the "size-of-transaction-test" will not even be triggered, regardless of the price the acquirer will pay. This is because legislator did not intend to introduce new thresholds for the acquisition of German based companies by foreign acquirers, but for the acquisition of important companies in digital markets with low revenues.
In summary, the German size-of-transaction-test is applied to a very specific scenario only: the acquirer (group) must exceed the "first" domestic threshold of EUR 25 million, but the target must not meet the "second" domestic threshold of more than EUR 5 million:
In our upcoming piece of this series on German merger control we will discuss the calculation of the "value of consideration" as part of the size-of-transaction-test. Please do not hesitate to contact us in case of any queries.
Dr. Christoph Peter is the managing partner of our firm. He advises on all areas of antitrust law. Professional focuses include the coordination of multi-jurisdictional mergers, advising corporate collaborations and associations, and representing companies in cartel finde proceedings before the Federal Cartel Office, the EU Commission and CFI / ECJ.
Dr. Kim Manuel Künstner advises on all aspects of German and European merger control as well as antitrust law, in particular on antitrust infringement proceedings, distribution systems as well as in relation to the communication and cooperation between manufacturers and retailers.