Antitrust Law in the Corona Crisis: German Merger Control Risks
+++ Update: 29 April 2020 +++
Merger control also applies in times of crisis. The changing economic environment may allow mergers that would have been prohibited in the past. More often, however, the corona crisis will delay merger control clearances.
Notification Requirements Remain in Place
Merger control notification requirements remain unchanged despite the corona crisis. No relief is to be expected in this respect, as politicians are already warning of a sell-out of the German economy in view of falling enterprise values.
Notification requirements are formalistically determined based on the participating companies' turnover figures in the last financial year. Interim sales declines are ignored just as much as red figures or even imminent insolvency of the target company. However, if the notification obligation is only triggered by the transaction value threshold, then a downward adjustment of the purchase price due to the crisis can eliminate the notification Obligation.
Anyone who is turning to minority shareholdings or co-investments in the current situation in order to minimize the capital investment should pay particular attention to a potential notification obligation: Even where a full acquisition would not be notifiable, such a transaction structure can trigger a notification obligation. This counter-intuitive result is due to the other shareholders or the co-investor also being taken into account in determining the notification obligation.
Advantages in the Competitive Assessment
While the notification obligation is based on the past, the competition authority's assessment is based on a prognosis for the future. A mere snapshot of the current situation is thus not decisive. Merging parties must therefore demonstrate why they will emerge particularly weakened from the crisis. Example: Competitors have significantly better online or take-away offers, are therefore currently gaining considerable market shares and will retain these after the current crisis due to consumers getting accustomed. In such cases, the corona crisis may facilitate mergers that would have been prohibited in the past.
The so-called failing firm defense could also become more relevant. Exceptionally, it allows even the creation of a dominant market position. However, it only applies if the prognosis for the continued existence of the target company is negative and if there is no potential purchaser that would pose less competition concerns (e.g. a financial investor). In addition, the exception does not apply to the sale of a mere company division.
Timing is a Challenge
The corona virus also affects the operating capacity of competition authorities. While the statutory review deadlines still apply in Germany, the Federal Cartel Office asks companies to submit notifications later where possible.* The EU Commission, the French competition authority and other international competition authorities have adopted a similar approach. More drastic measures were taken in Austria: For new filings, the review period does not start before 1 May 2020. The time schedules of transactions must be adjusted accordingly.
In practice, too, the competition authorities will make greater use of their tools to gain time, for example by making full use of deadlines, by objecting to incomplete information or by initiating an in-depth investigation. For more complex deals, the reasons for this will mostly not be attributable to the authority itself but rather to the delays in market investigations, e.g. when interviewing market participants.
This is all the more precarious in the current situation, as sellers depend on the purchase price flowing quickly and target companies depend on the acquirer being allowed to swiftly take over inoperable corporate functions.
Against this background, it is advisable to involve merger control experts at an early transaction stage, in particular, for deals that need to be closed swiftly due to the current crisis. These experts can then informally contact the authorities in advance in order to gain time. While theoretically possible, an application for an exception to the suspension obligation can only be a last resort, if at all.
* Update of 29 April 2020: The Federal Government plans to extend the pre-examination period to two months and the main examination period to six months. The modification is to apply only to applications which have been/will be filed between 1 March 2020 and 31 May 2020 and which have not already been released prior to entry into force
Dr Christian Heinichen