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02 February 2012
The merger control filing thresholds in Germany are very low. Foreign-to-foreign mergers are subject to German merger control if they have a 'domestic effect' – a term that is interpreted widely by the Federal Cartel Office (FCO). Disregarding the filing obligation under German merger control law may lead to hefty fines.
Recently, two US companies narrowly escaped being fined for violating the filing obligation under German merger control law. On January 25 the FCO published a case summary in which it explained what had happened and why it had decided against imposing a fine.
In 2009 US-based companies EMC and Cisco Systems formed a joint venture distributing integrated data centres. Formation of the joint venture was subject to a filing obligation under German merger control law, since the parties to the concentration exceeded the turnover thresholds. In the FCO's view, the concentration had a domestic effect since:
The FCO argued that although the joint venture was initially active only in the United States, the concentration was likely to have a domestic effect in Germany. In any event, the FCO held that a filing requirement had been triggered when, in 2010, the shareholders had transferred further assets to the joint venture and expanded its scope of activity to Europe.
The FCO did not impose a fine, but made clear in its case summary that the parties had violated their obligation to suspend implementing the concentration until clearance had been obtained. Also, the FCO explicitly mentioned the maximum fine of 10% of the worldwide group turnover. However, the FCO decided against imposing a fine in light of the insignificant impact of the joint venture on the market.
One peculiarity of German merger control law is that when companies in Germany forget to file and go ahead with the concentration despite the filing obligation, in the FCO's view they cannot obtain clearance through regular merger control proceedings. Upon receipt of notification for a transaction which has already been implemented, the FCO will open divestiture proceedings; if the concentration does not create or strengthen a dominant position the FCO will then close these proceedings. This is was what happened in the EMC-Cisco case.
The FCO has a track record of fining companies for violating their obligation to suspend implementation:
The FCO's 2006 fining guidelines also cover violations of the obligation to suspend implementation prior to clearance. Under the fining guidelines, a so-called 'basic amount' is determined. This can account for up to 30% of the turnover generated by the party concerned in the markets concerned by the concentration in Germany. The FCO will take into account whether the concentration should have been prohibited.
Gun jumping and other violations of the obligation to suspend a transaction prior to clearance can be costly in Germany. The FCO has repeatedly made clear that it will enforce this obligation, and has imposed fines on a number of occasions. This also applies to foreign-to-foreign-mergers. Owing to the FCO's broad interpretation of the notion of domestic effect, potential filing requirements for the formation of foreign joint ventures must be carefully analysed beforehand.
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