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New German Merger Control Thresholds: Fewer Merger Filings Required in Germany

February 13, 2009

Today saw the introduction of a new domestic nexus requirement in German merger control which will prove of real benefit to companies and investors doing deals involving businesses with sales in Germany. As a result of this new requirement, the number of merger notifications made in Germany is expected to reduce by a third.

On February 13, 2009, the Federal Council (Bundesrat) in Germany consented to the bill "3. Mittelstandsentlastungsgesetz” (MEG III), which was adopted by the Federal Parliament (Bundestag) on January 21, 2009. A bill adopted by the Federal Parliament becomes law when the Federal Council consents to it.

The MEG III is comprised of 26 legislative measures intended both to facilitate a number of administrative procedures for small and medium-sized enterprises and to lead to a substantial reduction of their administrative burden. One of these legislative measures (Article 8 of the MEG III) is of significant importance for the future applicability of German merger control because it introduces a second domestic revenue threshold of EUR 5 million into Section 35 Para 1 of the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen; "GWB").

The MEG III will enter into force immediately after its promulgation, which should take place within the next couple of weeks.

Current situation:

Under the current German law, a concentration must be notified with the German Federal Cartel Office (Bundeskartellamt) prior to its completion if the combined worldwide revenue of all participating enterprises exceeded €500 million in the last completed financial year and if at least one participating enterprise had a revenue exceeding €25 million within Germany. Often both thresholds are met by the acquirer alone. In such cases, according to the practice of the German Federal Cartel Office (FCO), as little as a few thousand Euros of turnover by the target in Germany was enough to trigger a pre-merger notification requirement in Germany.

As a result, a lot of small and unproblematic transactions were caught by German merger control.

What will be new?

On February 13, 2009, the German legislature undertook a major step to reduce the need to notify transactions that are unproblematic in Germany by requiring that each of at least two undertakings generate a certain level of domestic turnover.

Under the new threshold, transactions that involve only two parties (i.e., Company A acquires 100% of the shares or assets of Company B) with combined worldwide turnover of more than €500 million will only be caught by German merger control if one party achieved turnover of more than €25 million in the last completed financial year in Germany, and the other party had German turnover of more than €5 million. Consequently, small transactions where the target does not meet the €5 million domestic revenue threshold will no longer be caught by German merger control.

The two exemptions contained in Section 35 Para 2 GWB i.e., (i) the so-called affiliation clause (an undertaking which is not controlled and had a worldwide turnover of less than €10 million in the last business year merges with another undertaking); and (ii) the so-called de minimis market clause (the transaction is exclusively related to markets on which goods or commercial services have been offered for at least 5 years and which had a sales volume of less than €15 million in Germany in the last calendar year) will remain unchanged.