Concept and objective of merger control
Die Merger control is a sub-area of competition law and encompasses the legal review and, if necessary, prohibition of company mergers by state competition authorities. Its aim is to prevent the creation of dominant market positions or the strengthening of existing power positions that could significantly impede competition. As a tool for abuse prevention, merger control serves to protect market structures and ensures that open and fair competition conditions are maintained in economic life.
Legal basis of merger control
National legal basis (Germany)
National merger control is comprehensively regulated in Sections 35 to 43a of the Act Against Restraints of Competition (GWB). The following core topics are decisive:
- Scope of application: Sections 35 et seq. GWB apply to mergers if the participating companies exceed certain turnover thresholds in Germany.
- Notification requirements: There is an obligation to notify planned mergers unless an exception under Section 39 (2) GWB applies.
- Assessment criteria: According to Section 36 GWB, a merger can be prohibited if it results in a significant impediment to effective competition, particularly by creating or strengthening a dominant market position.
- Procedure: The review is generally conducted by the Federal Cartel Office, which decides within statutory deadlines upon receipt of the notification.
European legal basis
In addition to national law, a Union-wide regulatory system exists. The EC Merger Regulation (ECMR, Regulation (EC) No. 139/2004) governs mergers with a European dimension:
- Scope of application: The ECMR applies if the participating companies together exceed certain turnover thresholds worldwide and in the EU.
- Review: The European Commission is responsible and examines whether the merger would significantly impede competition in the European internal market, in particular by creating or strengthening a dominant position.
- Procedural structure: The ECMR provides for a two-stage review process (Phase I and Phase II) with fixed deadlines and detailed procedural rules.
International aspects
In addition to national and European regulations, numerous merger control systems exist worldwide. Multinational mergers can therefore trigger notification requirements in several countries, with international cooperation between authorities becoming increasingly important.
Substantive requirements for merger control
Definition of merger
The GWB (Section 37) and the ECMR define a merger broadly and in particular include:
- the acquisition of shares or voting rights above certain thresholds,
- the assumption of control over another company,
- the establishment of joint ventures,
- the acquisition of substantial assets, such as businesses or business units.
Assessment criteria
Both German and European law examine whether the merger leads to a significant impediment to effective competition or to the creation or strengthening of a dominant position. This includes a comprehensive market analysis, particularly with regard to the following aspects:
- Market definition (product and geographic)
- Market shares of the parties involved
- Position of the competitors
- Market entry barriers
- Buyer power
Special rules and exceptions
De minimis clauses and exceptions
Not every merger is subject to merger control. The GWB provides for exceptions under certain circumstances, for example if one of the participating companies has low revenues (Section 35 (2) GWB). So-called “rescue mergers” (Section 36 (1) GWB) may also be permissible under certain conditions, even if they result in a dominant position.
Ministerial authorization
A merger prohibited in Germany can nonetheless be approved by the Federal Ministry for Economic Affairs pursuant to Section 42 GWB on grounds of overriding macroeconomic interests or in the public interest. This ministerial authorization is an exceptional instrument with strict requirements.
Merger control procedure
Filing and preliminary review procedure
The start of a merger control procedure commences with the filing of the merger with the competent authority (Federal Cartel Office or European Commission). Notification is mandatory, and the planned transaction may not be implemented before clearance is granted (so-called standstill obligation, Section 41 GWB).
Review periods and phases
Under German law, the review period is generally one month (Phase I) from receipt of the complete notification. If a more detailed review is initiated (Phase II), the deadline is extended by a further four months. European law provides for comparable deadlines (25 working days in Phase I, 90 working days in Phase II).
Authority decisions
After examination, the authority makes one of the following decisions:
- Clearance of the merger
- Prohibition due to competition concerns
- Clearance subject to conditions and obligations
In case of prohibition, there is under certain conditions the possibility of appeal (complaint) to the competent court.
Legal consequences of violations of merger control
The implementation of a notifiable and non-cleared merger is unlawful. Severe sanctions may be imposed, particularly fines under Section 81 GWB. Furthermore, the previous status can be restored and contracts are, as a rule, considered pending invalid.
Significance of merger control in the economy
Merger control is of great importance for business practice and the economy: It ensures the diversity of supply, prevents concentration processes, and creates innovation-friendly market structures. At the same time, it prevents the emergence of market power that could harm consumers and business partners.
Literature and further legal sources
- Act Against Restraints of Competition (GWB)
- Regulation (EC) No. 139/2004 – EC Merger Regulation (ECMR)
- Guidelines and announcements of the Federal Cartel Office
- Publications of the European Commission on European competition law
This text was created for use in a legal dictionary for in-depth and systematic discussion of the topic of merger control.
Frequently asked questions
When must a planned merger be notified to the competition authorities?
In the legal context of merger control, notification is required whenever the turnover thresholds specified in the relevant laws are exceeded. In Germany, this is governed by the Act Against Restraints of Competition (GWB), and at the European level by the EU Merger Regulation (ECMR). The companies involved must consider not only their own revenues but all entities affiliated within the corporate group. Decisive is the attainment of the threshold values in the last completed business year. For example, Section 35 (1) GWB provides for different thresholds, such as the requirement that the companies involved must have jointly generated more than 500 million euros in turnover worldwide. The obligation to notify exists regardless of whether the merger is carried out domestically or internationally; what matters is whether its economic effects can be felt on the German or European market. In addition, there are special regulations, for example for the acquisition of minority shareholdings, so-called catch criteria, or transactions relating to other legal norms such as investment control. Notification must be made prior to completion; a so-called “stand still” obligation prohibits completion before clearance has been granted.
Which documents and information must be submitted with the merger notification?
The legally required information for a merger notification is specified in detail in Section 39 (3) GWB or in Form CO pursuant to the EU Merger Regulation and is very comprehensive. This includes, among others, precise information about the companies involved, their participatory structures, ownership relationships as well as details regarding all subsidiaries and affiliated companies. Furthermore, a comprehensive description of the merger project, its economic and legal foundations, as well as effects on the relevant market, including parties’ market shares, is required. Detailed financial data (e.g. turnover figures, participations, balance sheets) must also be provided. Additionally, the authority may request further information regarding supplier and customer relationships, competitive situations in the affected markets, or planned strategic objectives. In practice, it is advisable to compile all necessary documents early in order to expedite the notification process, as incomplete information can lead to delays.
What deadlines apply in merger control proceedings?
Upon receipt of a complete and proper notification, the statutory review periods begin. In Germany, the review period is four weeks for the so-called first review procedure (Section 40 (1) sentence 1 GWB). If a so-called main review procedure is initiated within this period, the deadline is extended by a further four months (Section 40 (2) GWB). Within this time frame, the Federal Cartel Office must investigate and decide on the planned merger. At the European level, the EU Merger Regulation provides for an initial 25-day period for Phase I, which is extended by another 90 working days if an in-depth investigation (Phase II) is initiated, with the possibility of further extension in exceptional circumstances. It should be noted that deadlines are handled strictly: “Gun jumping,” i.e. prematurely implementing the merger before the clearance period expires, constitutes a violation and can be punished with severe fines.
What are the consequences of failing to notify a notifiable merger?
The failure to notify a notifiable merger constitutes a serious legal violation of the relevant competition law provisions. In Germany, the Federal Cartel Office may, pursuant to Section 41 (1) GWB, prohibit the execution of the merger and, if necessary, even order its unwinding if it has already been implemented wholly or in part. Furthermore, Section 81 (2a) GWB provides for significant fines for companies and responsible persons. Civil courts also consider such mergers to be provisionally invalid until subsequent clearance has been granted. At the EU level, violations of the standstill obligation under Article 7 ECMR may be penalized by fines of up to 10% of global annual turnover. Thus, failure to notify or “gun jumping” is by no means a trivial offense, but entails far-reaching legal and economic consequences.
How is the market-based review of a planned merger conducted by the authorities?
In the context of merger control, the review of the competitive effects of the planned merger on the affected markets is central. The relevant legal provisions are Section 36 GWB and Article 2 ECMR. Authorities first define the relevant product, geographic, and, if necessary, temporal market. This concerns the product or service offering and the geographic scope. They then analyze the market position of the merging parties, market structure, existing or potential competitors, market shares, market entry barriers, demand and supply concentration, and potential network effects. The review is based on comprehensive data and may be supplemented by information requests to third parties, economic expert opinions, and sector analyses. The aim is to determine the risk of the creation or strengthening of a dominant position or a significant impediment to effective competition. This competition law prognosis is decisive for the decision on clearance, prohibition, or any conditions imposed on the merger.
Can mergers be approved even if negative competitive effects are identified?
Yes, even if the merger review indicates a significant impediment to competition, competition authorities may, pursuant to Section 36 (1) GWB or Article 2 (2) ECMR, approve the merger under certain conditions. This usually occurs by imposing conditions or obligations (so-called commitments or remedies) to eliminate competition concerns. Such measures include, for example, the divestiture of business units, granting access to essential infrastructure, supply or licensing obligations, or behavioral requirements. Companies may proactively offer remedies to compensate for possible competitive disadvantages. If this is insufficient, a complete prohibition remains the only option. In rare exceptional cases, the Federal Ministry for Economic Affairs may grant ministerial authorization upon application if overriding public interest exists and this outweighs the adverse competitive effects (Section 42 GWB). This particularly concerns projects of major economic importance or those relating to public security.
Are there special rules for certain industries or public shareholdings?
Yes, alongside the general provisions on merger control, there are industry-specific exceptions and special procedural rules, for example in broadcasting, insurance, banking, or energy. For instance, in the financial sector, there are additional supervisory requirements, meaning that mergers must not only pass merger control but also be approved by banking supervisory authorities (see Section 40 (2) GWB, Section 14 KWG). In the media sector, merger control reviews must also comply with media concentration law (see Sections 60ff Broadcasting Treaty). Where foreign investors acquire stakes in certain security-relevant or critical infrastructures, in addition to merger control, an investment review under foreign trade law may be necessary (Sections 55ff. AWG). Public companies are in principle also subject to merger control, whereby consideration of public interest may play a role in individual cases. The respective special rules always require a careful legal review on a case-by-case basis.
