October 9, 2014
NEW GUIDANCE ON DOMESTIC EFFECTS OF FOREIGN-TO-FOREIGN
MERGERS IN GERMAN MERGER CONTROL
To Our Clients and Friends:
The German Federal Cartel Office (FCO) published a revised guidance document on "Domestic
Effects in Merger Control"[1] which replaces the previous guidance document published in 1999. The
guidance covers so-called foreign-to-foreign mergers, i.e. concentrations between companies which are
headquartered outside of Germany. The aim is to relieve concentrations that do not affect Germany of
unnecessary bureaucracy. Mergers without sufficient domestic effects shall not have to be notified to
and reviewed by the FCO.
I.
Background
Under German law, the obligation to notify is triggered by a transaction that amounts to a
concentration within the meaning of Section 37 of the German Act against Restraints of Competition
(ARC),[2] and that reaches the turnover thresholds of Section 35 ARC.
According to section 35 (1) ARC, German merger control applies if in the last business year preceding
the concentration the combined aggregate worldwide turnover of all of the undertakings concerned was
more than EUR 500 million, and the turnover of at least one undertaking concerned in Germany was
more than EUR 25 million and that of another undertaking concerned was more than EUR 5 million.
Exemptions are applicable if a non-dependent undertaking which had a worldwide turnover of less
than EUR 10 million in the last business year, merges with another undertaking or if municipal entities
are merged during the course of territorial restructurings. German merger control is not applicable
where EU merger control takes precedence (section 35 (3) ARC).
Furthermore, the concentration must have sufficient effects within Germany (Section 130 (2) ARC).
Domestic effects can generally be found where a concentration is likely to have a direct and
appreciable influence on the conditions for competition in markets that cover part of or the entire
territory of Germany. The threshold for the appreciability of domestic effects is, however, not set very
high.[3]
The FCO's guidance document is designed to provide an analytical framework and practical examples
in order to help companies to assess whether a foreign-to-foreign concentration has sufficient effects in
Germany. The guidance is based on the FCO's current practice as well as case law established by
courts and it takes also recommendations for merger notification procedures from the International
Competition Network into account. However, due to the fact that it is not a binding instrument enacted
by the German legislator, courts are ultimately not bound in their interpretation due to the guidance
published by the FCO.
The FCO identifies clear cut cases where domestic effects can either be clearly identified or excluded,
and gives guidance for the case-by-case assessment in the remaining cases.
II.
Cases in which Domestic Effects Can Be Clearly Identified
The turnover thresholds of the ACR refer to the domestic turnover of at least two different parties to
the concentration. Consequently, a merger clearly has appreciable domestic effects if it takes place
between only two undertakings, each of which exceed the respective two domestic turnover thresholds.
If there are more than two companies involved in the concentration, namely if a joint venture is being
created, not all cases in which the turnover thresholds are exceeded will necessarily have an effect in
Germany. However, in case the joint venture is active in Germany, the FCO clearly assumes sufficient
domestic effects if the German turnover achieved by the joint venture exceeds EUR 5 million. In a
scenario where the joint venture's domestic turnover is lower (especially in cases of newly formed joint
ventures), the question of whether sufficient domestic effects can be expected usually requires a caseby-case assessment and will depend on the circumstances of each individual case (see below IV.).
III.
Cases in which Domestic Effects Can Be Clearly Ruled Out
The FCO clearly rules out domestic effects only in the following special joint venture scenario where
no spill-over effects can be expected. The following conditions need to be fulfilled cumulatively in this
context:
1. The joint venture is neither a current nor a potential competitor in Germany (for newly
established joint ventures, this applies to their intended business activities),
2. not more than one parent company (including its affiliates) is active on the same product
market in Germany than the one on which the joint venture is active abroad,
3. not more than one parent company (including its affiliates) is a potential competitor on this
market either, and
4. not more than one parent company (including its affiliates) is active on a German market
upstream or downstream from the joint venture's product market abroad.
IV.
Case-By-Case Analysis Required
In all other cases the question of whether sufficient domestic effects can be expected requires a caseby-case assessment and will depend on the circumstances of each individual case. The FCO suggests
the following considerations for the assessment of domestic effects:
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
If the concentration concerns a joint venture with minor business activities in Germany, i.e.
with domestic turnover below EUR 5 million[4], but if the market shares of the JV are above
5 per cent, the FCO considers this to be sufficient for the concentration to have appreciable
domestic effects so that a filing would be required.

However, according to the FCO, a market share below 5 per cent is only an indication for
potential lack of domestic effects and not at all a safe harbor. The FCO is of the opinion that
indications for a more than marginal market position can also result from the transfer of
resources to the joint venture by the parent companies, provided that the resources are relevant
for the company's market position, e.g. the transfer of intellectual property rights or know-how.

In the case of a newly established joint venture that has not achieved a turnover yet, the FCO
suggests that the projected sales in Germany during the first three to five years after the joint
venture's establishment usually provide a useful benchmark as to whether the joint venture's
activity in Germany is more than marginal.
If the joint venture's activities in Germany are only marginal, domestic effects can nevertheless be the
consequence of possible spillover effects stemming from its parent companies' activities. In particular
relevant spill-over effects can be expected if the parents remain actual or potential competitors on the
same German product market on which the joint venture is active abroad (and/or in Germany). Such
spill-over effects are, however, only marginal in cases where the parent companies' combined market
shares do not exceed 20 per cent. Similar considerations (including the 20 per cent market share
threshold) shall apply if both parents are active on markets upstream or downstream of the joint
venture.
V.
In Case of Doubt: FCO Recommends a Filing
As can be seen, the assessment of a concentration's domestic effects can raise more complex questions
than the assessment of its actual competitive effects. For such cases, the FCO holds the opinion that an
intense examination of domestic effects is unnecessary if it is obvious that the concentration does not
raise any competition concerns. In line with its past practice, the FCO continues to stand ready to
accept a precautionary filing and examine the concentration with a focus on relevant competition
issues. In such unproblematic merger cases, a clearance can be obtained within no more than one
month after notification and without mandatory pre-notification contacts. It should be noted that the
information requirements under Section 39 ARC are very limited. Moreover, if the parties concerned
can demonstrate that they are prevented by provisions of foreign law or other circumstances from
submitting all the mandatory information usually required and if it is clear from the submitted
documents or from information available to the FCO that a prohibition of the concentration is
definitely not to be expected, the authority does not make the clearance of foreign-to-foreign mergers
conditional upon the completeness of the submitted notification. This approach shall ensure that the
companies concerned can obtain legal certainty with a minimum of bureaucracy.
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VI.
Conclusion
The FCO provides useful guidance on when a foreign-to-foreign merger has domestic effects. If a
concentration takes place between only two undertakings which exceed the German merger control
thresholds, the deal always has domestic effects. Consequently, foreign companies can only benefit
from the domestic effects doctrine in joint venture cases or other mergers involving three or more
parties. Under German merger control law a joint venture occurs if at least two parent companies hold
at least 25 per cent of the shares in one and the same undertaking each, regardless of who controls the
joint venture. However, only the creation of a joint venture that is not (going to be) active in Germany
and whose parent companies are not (potentially) active in the same market in Germany clearly has no
domestic effects provided not more than one parent company is active on a German market upstream
or downstream from the joint venture's product market abroad. For all other cases, the FCO suggests a
case-by-case analysis of potential spill-over effects, including an assessment of turnover, market shares
and synergies. In a lot of such cases, however, a precautionary filing appears to be more efficient and
will provide the legal certainty and avoid the risks and costs of non-compliance with the statutory
merger filing requirement if the FCO later establishes that a merger should have been filed. The FCO
has developed a very efficient practice in reviewing such foreign mergers and will clear unproblematic
cases in a month or less.
[1] An English (non-binding) courtesy translation of the guidance document is available for
download at the FCO's website (published on 30 September 2014): http://www.bundeskartellamt.de/
SharedDocs/Publikation/EN/Merkblaetter/Leaflet%20%20Guidance%20document%20domestic%20
effects%202014.html?nn=3591568.
[2] The following transactions are deemed to be concentrations within the meaning of the
Section 37 (1) Nos. 1-4 ARC: (i) the acquisition of all or of a substantial part of the assets of another
undertaking, (ii) the acquisition of direct or indirect control by one or several undertakings of the
whole or parts of one or more other undertakings, (iii) the acquisition of shares in another undertaking
if the shares, either separately or together with other shares already held by the undertaking, reach or
exceed (a) 50 per cent or (b) 25 per cent of the capital or the voting rights of the other undertaking, and
(iv) any other acquisition of less than 25 per cent in another undertaking enabling the purchaser to
directly or indirectly exert a competitively significant influence on the other undertaking.
[3] For instance already negligible market share accumulations (e.g. 4.4% plus 0.14% or 3.5% plus
0.23%) may trigger this criterion.
[4] In such a scenario, the second domestic turnover threshold of EUR 5 Million would need to be
fulfilled by one of the parent companies in order to trigger a filing requirement in the first place.
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Gibson, Dunn & Crutcher's lawyers are available to assist in addressing any questions you may have
regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work,
or the authors of this alert:
Michael Walther - Munich (+49 89 189 33-180, [email protected])
Jens-Olrik Murach - Brussels (+32 2 554 7240, [email protected])
Kai Gesing - Munich (+49 89 189 33 180, [email protected])
Hartmut Kamrad - Munich (+49 89 189 33-180, [email protected])
Please also feel free to contact any of the following members of the firm's Antitrust and Competition
practice group:
Brussels
Peter Alexiadis (+32 2 554 7200, [email protected])
Andrés Font Galarza (+32 2 554 7230, [email protected])
Jens-Olrik Murach (+32 2 554 7240, [email protected])
David Wood (+32 2 554 7210, [email protected])
London
Ali Nikpay (+44 20 7071 4273, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Charles Falconer (+44 20 7071 4270, [email protected])
Patrick Doris (+44 20 7071 4276, [email protected])
Deirdre Taylor (+44 20 7071 4274, [email protected])
Munich
Michael Walther (+49 89 189 33-180, [email protected])
Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Los Angeles
Daniel G. Swanson (+1 213-229-7430, [email protected])
Washington, D.C.
Scott D. Hammond (+ 1 202-887 3684, [email protected])
F. Joseph Warin (+1 202-887-3609, [email protected])
D. Jarrett Arp (+1 202-955-8678, [email protected])
David P. Burns (+1 202-887-3786, [email protected])
John Christopher Wood (+1 202-955-8595, [email protected])
Cynthia Richman (+1 202-955-8234, [email protected])
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New York
Randy M. Mastro (+1 212-351-3825, [email protected])
Peter Sullivan (+1 212-351-5370, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])
James A. Walden (+1 212-351-2300, [email protected])
Denver
Robert C. Blume (+1 303-298-5758, [email protected])
Dallas
Veronica S. Lewis (+1 214-698-3320, [email protected])
Brian Robison (+1 214-698-3370, [email protected])
San Francisco
Gary R. Spratling (+1 415-393-8222, [email protected])
Joel S. Sanders (+1 415-393-8268, [email protected])
Trey Nicoud (+1 415-393-8308, [email protected])
Rachel S. Brass (+1 415-393-8293, [email protected])
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