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Covid-19 impact on German and European merger control proceedings


Merger approvals may be delayed because of capacity issues caused by coronavirus. This should be considered while drafting contracts and timetables for a deal, experts have warned.

Competition regulators in Europe and elsewhere have already adjusted their processes to account for changes to their ability to carry out their functions.

Notification only in exceptional cases

The EU Commission, many member state competition authorities and US authorities have called on companies to postpone the notification of planned mergers and to submit notifications of planned mergers only in exceptional cases, and preferably in digital form. This is not only due to the technical challenges presented by home working, but because competition authorities will not be able to carry out market tests easily in the near future.

Hans Jürgen Meyer-Lindemann, antitrust expert of Pinsent Masons, the law firm behind Out-Law, said: "The questioning of customers, competitors and suppliers required for more complex cases is likely to be delayed or difficult to complete, so that the authorities may lack a sufficient evidentiary basis for a robust and court-proof decision."

The German Federal Cartel Office (FCO), for example, asks companies "to consider in each individual case whether, in view of the challenging circumstances, a project has to be submitted to the Bundeskartellamt right away or whether it could possibly also be submitted at a later date."

Start of period is postponed, suspended or not triggered

Competition authorities usually examine mergers within a fixed period, for example in Germany within one month in Phase I. If the one-month review period expires, the merger is deemed to have been cleared and the parties are treated as if their proposed merger had been approved. Due to the limited capacity of many authorities to act there could be a risk that timely processing would not be possible and that merger clearance would inadvertently occur when the deadline expires.

Some competition authorities are already postponing the start of the deadline for current notifications - for example, in Austria until 1 May 2020. Some authorities are also suspending the deadline until mid-April 2020, for example in Denmark and Italy. In France, the regulatory time limits are suspended until the expiration of a one month delay from the termination of the state of the health emergency. In Serbia the merger review deadline is considered to have been passed 30 days from the termination of the state of emergency.

National laws may require the parties to notify the authorities of the proposed merger within a certain period after signing. In Serbia, exceeding this deadline does not currently entail any further consequences.

Extension of the examination periods

To the extent provided for in various European merger control regimes, many competition authorities already have the power – irrespective of the Covid-19 pandemic – to suspend procedural deadlines if parties are unable to reply to extensive questionnaires in time. In any case, the review period is usually only triggered when a notification is complete and formally accepted by the authority. An incomplete application may, however, only become apparent during the ongoing proceedings. Only if the parties make corrections does the deadline start to run. Thus, there are procedural tools that competition authorities can use to delay 'starting the clock' for merger review if companies do not voluntarily refrain from filing during the current crisis. 

Contact with authorities

Even if companies have compelling reasons why notification cannot be delayed in the current circumstances, the competent authority should be informed accordingly in advance, said Meyer-Lindemann. This would be advisable if only to clarify to what extent the entire transaction timetable will be affected by the merger control proceedings.

Special contractual clauses

Contractual clauses relating to merger control procedure should anticipate the scope for considerable delays in individual jurisdictions and that even authorities that have not yet changed their deadline regime will likely make maximum use of their existing deadlines in order to be able to examine the notified transactions properly, said Meyer-Lindemann. This may include contractual clauses in sale purchase agreements such as the so-called long stop date, which obliges buyers to pay a contractual penalty if the necessary approvals have not been granted by a certain date.

So-called best-efforts clauses stipulate that both parties must make every reasonable effort to meet the closing conditions, including obtaining antitrust approval. "Even in this context, it is important not to set an inflexible or unrealistically short deadline within which the parties have to bring a project to notification," said Meyer-Lindemann.

Prohibition of enforcement still applies

In a joint statement, the European Competition Network (ECN) has made it clear that antitrust law applies without restriction even during the coronavirus pandemic. The existing rules are sufficiently flexible to take into account the changed market conditions. "Even if the authorities' appeal is primarily aimed at preventing companies from using the crisis to justify practices that violate antitrust law, the same also applies to rules in merger control proceedings. According to the stand still obligation, parties are not allowed to carry out notifiable merger projects without the green light from the competent authorities.

"So-called gun-jumping, where companies carry out a merger before the approval of the competent antitrust authorities is obtained, would not only result in fines but also in the invalidity of the contracts," said Laura Stammwitz, an antitrust law expert at Pinsent Masons.

However, the Portuguese competition authority accepted just recently that a fine imposed in connection with a gun-jumping infringement will be paid in instalments. The reason was that a hospital had violated the standstill obligation that prohibits gun-jumping. However, a one-off payment of the fine in this case would have jeopardised the hospital's ability to function, which had to be avoided in these times.

Exception to the standstill obligation

"It is obvious that the crisis will lead to further corporate insolvencies and that even at present companies are acquiring companies that are insolvent," said Stammwitz. The FCO and the EU Commission may in exceptional circumstances grant an exemption from the standstill obligation in order to prevent serious threats to the viability of one of the companies involved or to third parties. This is intended to prevent the collapse of a crisis-stricken company, particularly in the case of reorganisation mergers.

"Up to now, it has been more pragmatic in practice to rely on speedy merger clearance in unproblematic cases to avert possible failure of a business instead of additionally applying for exemption from the standstill obligation," said Stammwitz. "However, if - be it due to an authority's workload or changes to procedural deadlines - a simplified merger clearance decision is not realistic in the medium term either, seeking exemption from the standstill rule could become increasingly important".

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