Developments in merger control: lower turnover thresholds and more merger filings

Whether a merger, an acquisition or the formation of a joint venture needs to be notified to the competition authorities is generally determined by whether the companies involved achieve certain turnover thresholds. In Germany amendments of the statute have been entered into force on 8 June 2017, which lower the turnover thresholds, thus increasing the chance that the Bundeskartellamt (“BkA”) must be notified of a transaction carried out in Germany. The new act introduces a threshold which is partly based on the value of the transaction. Since Germany is not the only country where such developments are taking place, we will discuss these developments in this blog and answer the question of whether the Netherlands can expect something similar.

In nearly all EU jurisdictions, a transaction must be notified if the parties involved in the transaction: (i) jointly exceed a worldwide turnover threshold and (ii) individually exceed a national turnover threshold. The last few years have seen debate as to whether this approach allows the competition authorities to control all relevant transactions. This debate was triggered by (among other things) the fact that transactions with a high transaction value have turned out not to require notification because the target company was still achieving only a small turnover, whereas it could be, or could shortly become, very important in the competitive process. The acquisition of WhatsApp by Facebook in 2014 is illustrative of this. At that time, WhatsApp was achieving an annual turnover of approximately ten million euros, whereas Facebook was willing to pay an acquisition price of 19 billion dollars. In 2014, this transaction did not require notification in Germany because of WhatsApp’s low turnover in that country. As the acquisition did achieve the relevant thresholds in three other EU Member States, Facebook asked the European Commission (the “Commission”) to assess the transaction and the Commission approved it. However, this was not the end of the matter for the Germans. This case was one of the reasons why the German legislature decided to adjust the national turnover thresholds for the assessment of mergers by the BkA. Previously in Germany a concentration was subject to notification with the BkA:

1. if the relevant parties achieved a worldwide turnover of more than 500 million euros,
2. if one of them achieved a turnover of more than 25 million euros in Germany, and
3. if one other party achieved a turnover of more than five million euros in Germany.

With the new act, if the turnover threshold mentioned in point 3 is not achieved a transaction in Germany will also have to be notified in the following cases:

4. if the transaction value “(…) der Wert der Gegenleistung für den Zusammenschluss (…)” is more than 400 million euros and
5. if the target company is significantly active in Germany “(…) in erheblichem Umfang im Inland tätig ist (…)”.

The threshold for the transaction value (400 million euros) can be measured objectively and is clearly meant to allow the BkA to assess acquisitions of rapidly growing or otherwise valuable start-ups. In itself, such a threshold is not new: it is already used in the United States and Canada. The threshold pertaining to whether the target company is significantly active in Germany is considerably less clear. The explanatory notes to the bill unfortunately provide little to go on in interpreting this norm. The only two specific examples –briefly summarised here – are the following:

1. significantly active: a target company offers an app with over one million users in Germany either free of charge or for a very low price;
2. not significantly active: a target company selling specialised motors has a turnover of around one million euros in Germany, in a sector that is characterised by, inter alia, high turnover volumes.

So far no further guidance has been given. We therefore expect that, in practice, the threshold in point 5 will quickly raise questions. If there are doubts, it is recommended that contact be sought with a specialised lawyer or the German competition authority. Further guidance is important: and this is all the more pressing, seeing as the new German thresholds (under points 4 and 5) apply not just to start-ups in internet or technology markets, but to all sectors. Put briefly, the acquisition of a medical start-up, for example, where the transaction value is more than 400 million euros and where that company is significantly active in Germany may shortly be classified as an acquisition requiring notification in Germany.

These developments in Germany are not isolated. The Austrian parliament has also set new thresholds requiring a specific transaction value in combination with a certain presence in Austria of the parties involved. These new thresholds will take effect on 1 November 2017. In the meantime, Italy is discussing lowering the turnover threshold. These measures are intended to allow the national competition authorities in these countries to control more transactions.

It is not only national authorities that are revising the rules for merger control. The Commission is also considering the introduction of a threshold for the transaction value. A public consultation on EU merger control was completed on 13 January 2017. The results are expected to be published in the first half of 2017 and based on that the Commission will investigate whether adjustments are necessary. The United Kingdom shows that there is another way of going about this. That country is considering decreasing its merger controls by actually raising the turnover thresholds.

In the Netherlands no suggestions have thus far been heard in favour of introducing a threshold for merger control based on the transaction value. That doesn’t alter the fact that the Netherlands will also see developments in the field of merger control:

• firstly, the current decision to temporarily widen the scope of merger control, stating the lower turnover thresholds for mergers in the healthcare sector, is in effect until 31 December 2017. The question seems not to be so much about whether this decision will be renewed, but whether specific forms of healthcare, such as youth care (jeugdzorg), will be added and consequently be subject to the lower turnover thresholds for mergers in the healthcare sector. For more information on the relevant thresholds of the Dutch Healthcare Authority (“NZa”) and the Netherlands Authority for Consumers & Markets (“ACM”) in relation to mergers and acquisitions in healthcare, click here (in Dutch only);
• secondly, in April 2016 the Dutch Lower House received the legislative proposal providing for the transfer of the healthcare-specific merger control regime from the NZa to the ACM. This blog (in Dutch only) looks into the topic. After the elections, the proposal was deemed controversial, but that is not to say that the proposed transfer to ACM (including adjustment of the current thresholds used in the NZa merger review) will not be able to take place as of 1 January 2018.

All these developments show that legislators and regulators are not sitting still when it comes to widening the scope of merger control. It therefore pays to investigate whether a transaction must be notified, and to which authority. Non-timely notification, also referred to as gun jumping, is regularly subject to fines. And even if notification is timely, the parties must not count their chickens before they are hatched: such conduct is also considered gun jumping. For more information on what rights the purchaser may exercise in the phase between signing the purchase agreement (often the Share Purchase Agreement, “SPA”) and closing the transaction, click here. Furthermore, it is essential not to furnish any incorrect data to the authorities during the notification process. The acquisition of WhatsApp by Facebook was later questioned by the Commission. In 2016, the Commission launched an investigation to learn whether, in their notification in 2014, WhatsApp and Facebook might have misled the Commission by furnishing incorrect information. In 2016, the Commission launched an investigation to learn whether, in their notification in 2014, WhatsApp and Facebook might have misled the Commission by furnishing incorrect information. In the meantime the Commission took a decision on 18 may 2017. Although this decision  has not resulted in withdrawal of the approval given at the time, the Commission has fined Facebook 110 million euros for providing incorrect or misleading information.   

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