Andreas Mundt, president of the German Federal Cartel Office (FCO), continuously stresses that an effective and strong merger control regime is one of the authority’s most important tools. The FCO – once again – put this into practice. Following previous investigations, it finally asked Meta (Facebook) to file a notification of the intended acquisition of Kustomer in Germany last week - while the transaction is under parallel review by the European Commission (EC) based on a referral request.
German standards to Article 22 EUMR referrals
The transaction was referred to the EC under Article 22 EUMR in April by the Austrian authority that was joined by nine other Member States. Germany was not part of them as the FCO was not sure if it in fact had jurisdiction itself - although based on new EU guidance Member States can now also refer without having jurisdiction. The European Courts are currently looking into this in the Illumina/Grail case.
Parallel proceedings in line with the EU One Stop Stop principle?
In theory, despite the One Stop Shop principle for merger control at EU level, national authorities not referring a case to the EC can still review a transaction under their national regimes as the EC’s substantive assessment only covers jurisdictions which made or joined a referral request.
This “exception” has always been there and there are examples where there have been parallel proceedings in the past, e.g., in Procter & Gamble/Sara Lee Air Care where Italy, Austria and Cyprus reviewed the case in parallel to the EC. For the parties, the FCO’s involvement at least has an important impact on timing.
Different timelines for EU and German filing
German proceedings will most likely start seven months after the beginning of the EU review where the case is under in-depth investigation. In the meantime, authorities in Australia and the UK have already cleared the transaction. The EC deadline was extended several times and most recently set at 28 January 2022 following remedy offers in early December.
If the FCO receives a notification by the end of the year, it will have until end of January 2022 to either clear the transaction or to open second phase proceedings which may at least take another four months (plus one month in case of remedies). It is likely that in-depth proceedings in Germany will further postpone the implementation of the entire deal.
Compensation for missing Facebook/WhatsApp?
There may be further reasons why the FCO decided to step in. For Meta/Kustomer - like some years ago in Facebook/WhatsApp -, German “standard” turnover thresholds were not met. But now the FCO could rely on the new threshold which is based on the purchase price introduced in 2017 into German merger control law.
The idea was to close a “jurisdictional gap” to cover the acquisition of start-ups and companies active in the digital markets which typically do not generate significant turnover, but nevertheless have a high market potential reflected in the purchase price.
What does this mean for future transactions?
The EU referral mechanism already puts some uncertainty into the timing of merger control proceedings. However, as there are clear deadlines for joining or not joining a referral, this is acceptable. Even parallel proceedings in the EU and before national authorities are manageable (and to a certain extent foreseeable) if they are more or less run in parallel.
But in this case the FCO's assessment of whether or not it has jurisdiction lasted for several months which results in an unusual delay. In particular in the digital field, this is unfortunate as today’s top technology could be outdated tomorrow. The FCO’s approach is currently in line with Article 22 EUMR.
Going forward, clearer guidance can now be expected from EU courts in the Illumina/Grail case.
FCO President Mundt: “We already see particularly strong market concentration in the digital economy. Stringent merger control is therefore absolutely necessary.”