The main statutes governing merger review in Austria are the Austrian Cartel Act,2 which contains the main substantive body of rules, and the Austrian Competition Act,3 which establishes and determines the investigatory powers of the Federal Competition Authority (FCA).
In Austria, mergers have to be notified to the official parties, namely the FCA and the Federal Cartel Prosecutor (FCP). The FCA is an independent body that administratively belongs to the Ministry of Economics, while the FCP reports to the Federal Minister of Justice.
In cases where either (or both) of the official parties request an in-depth Phase II examination, jurisdiction over the merger devolves to the Cartel Court.
While most European merger control regimes (currently) only cover transactions that give rise to a change in a firm’s control structure, Austrian merger control also catches transactions that do not give rise to a change of control. Pursuant to Section 7 of the Cartel Act, the following types of transactions are notifiable:
- a the acquisition of an undertaking or of a part of an undertaking;
- b the acquisition of rights with regard to the business of other undertakings (such as certain contracts for the lease or management of the business);
- c the direct or indirect acquisition of 25 per cent or more or 50 per cent or more of the shares or voting rights in an undertaking;
- d cross-directorships: acts that bring about the identity of at least half of the members of the executive board or the supervisory board in two or more undertakings;
- e any achievement of a direct or indirect controlling influence over another undertaking; and
- f the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.
Internal reorganisations however are not notifiable. In addition, the Cartel Act provides for certain exceptions in the case of acquisitions by credit institutions and investment funds.
A transaction of the above type will be notifiable if the parties meet the jurisdictional thresholds of Austrian merger control. Like most European regimes, jurisdiction is determined based on the turnover achieved by the undertakings concerned (usually acquirer and target) in the last business year. The Austrian competition authorities have jurisdiction over a transaction if:
- a the undertakings concerned achieved a combined global turnover of more than €300 million;
- b the undertakings concerned achieved a combined turnover of more than €30 million in Austria; and
- c at least two of the undertakings concerned each had a global turnover of more than €5 million.
If only one of the undertakings concerned had an Austrian turnover of more than €5 million, and the combined worldwide turnover of the other undertakings concerned did not exceed €30 million, the transaction will be exempt from the filing requirement. While this exemption excludes some transactions (notably, acquisitions by Austrian firms of small foreign businesses) from the otherwise very broad filing requirement, Austrian merger control nevertheless catches many transactions that are incapable of producing effects on competition in Austria. The Austrian Supreme Court has, however, held that Austrian merger jurisdiction is based on the effects principle, and thus does not apply in certain cases where the lack of effects in Austria is particularly clear-cut.4
Special turnover calculation rules apply in the media sector. Depending on the activities of the undertakings concerned (e.g., newspaper, publisher, news agency), the respective turnover must be multiplied by a factor of 20 or 200.
II YEAR IN REVIEW
With 366 filings received by the FCA, the number of mergers notified to the FCA rose by about 10 per cent in 2015. Like in 2014, the number of in-depth investigations was low in 2015: only four transactions were referred to the Cartel Court for investigation in Phase II. Three decisions are still pending; one of these cases, as well as a case that had been notified in 2014, received conditional Phase II clearance in 2015. What is noteworthy is that this relative paucity of Phase II cases did not go hand in hand with an increase in Phase I remedies. In fact, unlike previous years, 2015 saw only one Phase I clearance based on remedies offered by the parties.
i Conditional clearance in Phase I
In general, Austrian practice remains more flexible than that of many other countries when it comes to the acceptance of non-structural remedies. In fact, the only commitments made in 2015 during Phase I were purely behavioural.
The case concerned the acquisition of a 25.1 per cent interest in Media Impact GmbH & Co KG, a subsidiary of Axel Springer SE by Funke Mediagruppe GmbH & Co KG. In 2014, the cooperation between Funke and Axel Springer concerning advertising sales had been cleared conditionally by the Cartel Court (27 Kt 164, 165/13 in conjunction with 29 Kt 1,2/14).
When acquiring shares in Axel Springer’s marketing subsidiary, and thus creating a joint venture, the parties committed to respect some of the conditions set by the court in this venture: Media Impact would: (1) refrain from bundling ads in the Funke and Springer magazines in the field of international marketing; (2) contractually transfer this obligation onto third parties and, on top of the prior commitments taken, (3) instruct its employees responsible for international marketing not to bundle, to request yearly confirmation of compliance with this instruction, and to pass them on to the parent companies for reporting back to the FCA and FCP. However, no structural remedies were proposed, requested or deemed necessary.
ii Conditional clearance in Phase II
In 2015, the Cartel Court conditionally cleared one merger that had been notified in 20145 and a second that had been brought to Phase II in 2015,6 whereas the remaining three of the four cases brought to Phase II in 2015 are still pending, or at least not published in the public edicts database.7 The Cartel Court hereby based its decision on behavioural remedies (see first case) and also required structural remedies where necessary (see second case).
The first case concerned the brewing industry. Brau Union, Austria’s leading brewing company, and part of the Heineken group, intended to increase its shareholding in VKB, a regional brewer in the south of Austria, from 50 to 100 per cent. While Brau Union had already held joint control prior to the transaction, the FCA and the FCP nevertheless initiated Phase II, due to the high concentration of the beer market in the relevant region. The remedies accepted in this case involve commitments by Brau Union to continue the operation of VKB’s brewery and to maintain a separate sales team for VKB. By contrast, Brau Union remains free to integrate other business functions (such as purchasing, storage and bottling). In addition, Brau Union has committed not to acquire breweries or wholesalers in the relevant region for a period of eight years.
The second case concerned ambulance and patient transfer services. The Austrian Red Cross’ regional division in Vienna intended to acquire Grünes Kreuz – Rettung und Soziale Dienste gem GmbH (Green Cross). Both official parties applied for a Phase II examination by the Cartel Court; the latter finally cleared the transaction conditioned on (among others) the following structural remedies: Red Cross Vienna (1) was not allowed to acquire (any shares of) Green Cross’ business relating to the regions of Lower Austria and Styria; and (2) was required to keep the parties’ business separate after acquisition and thus run the Viennese related Green Cross’ business as in an independent company (including certain behavioural restrictions on the use of their shareholder rights).
iii Infringements of the standstill obligation and fines for gun jumping
The FCA and the FCP continued to pursue violations of the standstill obligation, and obtained fines for such violations in two cases.
The first fine imposed by the Cartel Court in 20158 referred to an underlying merger in the vehicle sector, which had been notified already in 2008. At that time, the merger had been brought to Phase II. In Phase II, the official parties had withdrawn their applications following the filing of commitments by the notifying party; these included certain reporting obligations to the FCA and the publishing of certain product ads. In 2014, both official parties applied for a fine because the undertaking concerned had failed, in their opinion, to comply with the commitments made in 2008. This was considered an infringement of the standstill obligation, meaning no implementation was permitted other than the one (conditionally) cleared. The Cartel Court confirmed this legal point of view and imposed a fine of €30,000 accordingly.
According to the fined undertaking, all delay and failure to comply was due to a particular employee, but the official parties simply considered this to be a lack of the required diligence, which was after all imputable to the undertaking. Moreover, this case shows the authorities’ flexible approach to compliance with commitments. Commitments (also towards the official parties) and obligations deriving therefrom are to be taken seriously. However, in general the official parties are willing to renegotiate them with undertakings if the economic and market situation has changed.
The second case involved the acquisition of Ankerbrot, a traditional Austrian bakery in financial difficulties, by a consortium of investors. The case was notified to the FCA on 7 April 2014, and received clearance on 4 July 2014. However, the parties closed the transaction on 1 May 2014. Furthermore, the Cartel Court found that the shareholders of Ankerbrot had already appointed one of the two representatives of the main acquisition vehicle (through which the investors acquired a 60 per cent shareholding) as a new board member in February. As Ankerbrot previously had had a one-person board, this appointment gave rise to an overlap of 50 per cent in the management boards of Ankerbrot and the acquisition vehicle, and thus constituted a notifiable cross-directorship under Austrian merger control. What is notable about the case is that the Cartel Court imposed a fine on the target, Ankerbrot, rather than on the acquirers. In doing so, it considered that the legal implications of the board nomination had been difficult to spot. It also noted that, unlike acquisitions of control, the notifiability of cross-directorships related only to formal corporate acts. With a view to this, and to the short duration of the infringement, it imposed a fine of only €20,000.9 It is arguable that the fine might have been higher had the appointment been attributable to the acquirers as an acquisition of control.
The third case concerning an infringement of the standstill obligation was based on a negligent failure to notify.10 W Hamburger GmbH had acquired a 100 per cent share of Fritz Peters GmbH & Co KG, a paper mill situated in Germany. The transaction was notified in Germany, Poland and Ukraine and put into effect by transfer of shares on 2 June 2014. However, it was not notified in Austria following incorrect legal advice about Austrian merger control law given by a German law firm. W Hamburger GmbH realised its failure to notify and filed the transaction to the FCA on 18 September 2014. As both official parties refrained from applying for Phase II, the standstill obligation terminated with end of
Phase I on 9 October 2014. Consequently, both official parties applied for a fine for breach of the standstill obligation from 2 June 2014 to 9 October 2014. The Cartel Court imposed a fine amounting to €40,000 and argued that, despite this being the only negligent infringement in the case at hand, the imposing of a fine was necessary, even in cases of minor fault and the amount of the fine should not be so low as to deprive the fine of any economic significance to the undertaking concerned.
Finally, the Cartel Supreme Court confirmed a decision of the Cartel Court as court of first instance following which a rehabilitation centre is to be considered as an undertaking in the meaning of the Cartel Act.11 The decision was based on the fact that a subsidiary of a public sickness fund acquired 49 per cent of the stake in a rehabilitation centre, and therefore acquired the right to appoint the management. The Cartel Supreme Court decided that the acquirer, by refraining from notifying the acquisition, hereby infringed the standstill obligation. A fine of €155,000 was imposed on the acquirer.
The acquirer appealed the decision and argued that the rehabilitation centre acts in the exercise of public authority with the consequence that the centre would not qualify as an undertaking (and therefore the planned transaction would not have to be notified). Furthermore, the right to appoint the management was limited to five years only. In the acquirer’s view the acquisition was, therefore, not planned to operate on a long-term basis, again with the consequence that merger control would not apply.
In examining the question concerning exercise of public authority, the Cartel Supreme Court applied five criteria based on former case law.12 In the given case, exercise of public authority was denied: consistent with a 2004 Cartel Supreme Court decision, the given rehabilitation centre did not participate in the administration of a system of social security and did not act under the principle of solidarity. By also competing for private patients, the rehabilitation centre provided services to the private market. Concerning the duration of the management agreement, the Cartel Supreme Court concluded that the contract’s duration of five years, with an automatic five-year extension (unless the contract was cancelled before the end of the first five-year period) must, ex ante be considered to be an agreement for an indefinite period of time. In the Cartel Supreme Court’s view, the agreement was planned to operate on a long-lasting basis.
The acquisition of the shares was therefore considered to be a notifiable merger between two undertakings. The Cartel Supreme Court confirmed the fine of €155,000 imposed by the Cartel Court on the acquirer for infringement of the standstill obligation.
These cases indicate that the official parties continue to be willing to bring violations of the standstill obligation to court.
III THE MERGER CONTROL REGIME
Austrian merger control is mandatory and suspensory. Transactions that meet the jurisdictional test have to be notified to the FCA, and may not be put into effect before clearance. Unlike EU merger control, the Austrian regime does not provide for an exception to the standstill obligation for public tender offers. Austrian case law and legal writing, however, lend some support to the notion that shares may nevertheless be acquired, as long as the control rights resulting from such shares are not exercised. In practice, it may be prudent to provide for contractual restrictions on the exercise of voting rights (e.g., by means of hold-separate arrangements), to convince the Austrian authorities that this is indeed not the case.
Merger proceedings follow the typical division into a preliminary (Phase I) and an in-depth (Phase II) review. The Austrian system, however, differs from the EU model in that the reviewing authority changes if Phase II is initiated. After notification to the FCA, a Phase I review is carried out by the FCA and the FCP. Either of these authorities may file an application with the Cartel Court to initiate Phase II. Once a Phase II application has been filed, jurisdiction over the transaction devolves to the Cartel Court. Austrian Phase II proceedings thus are court proceedings, with the requesting authority (FCA, FCP, or both) in the role of the applicant, and the notifying party in the role of the defendant.
Austrian law does not provide for a filing deadline. Notifications may even be submitted prior to signing, provided the parties can demonstrate a good faith intention to enter into the transaction, and there is basic agreement as to the transaction’s structure and timing.
There is no specific legal guidance with regard to pre-notification contacts with the official parties. In cases that do not give rise to competition concerns, notifications are typically submitted without prior consultation of the FCA or the FCP. However, the authorities are open to pre-notification discussions if requested by the parties. Such contacts may well be helpful in complex cases or notifications where undertakings with high market shares are involved. In particular, given the fact that Phase I in Austria is comparatively short, pre-notification contacts can be useful to avoid the risk that the official parties request a Phase II investigation simply because they did not receive, or have time to process, all necessary information in time. On its website, the FCA indicates that pre-notification talks may be helpful in particular if the parties intend to offer remedies.
Upon notification, the FCA publishes a short summary of the transaction on its website. The waiting period in Phase I is four weeks from notification. This period may be extended by an additional two weeks upon request by the notifying party. By contrast, the Austrian authorities do not have the power to extend the deadline without the notifying party’s consent (no ‘stop the clock’ mechanism).
The great majority of transactions are cleared in Phase I. Unlike in other jurisdictions, there are no reasoned Phase I clearance decisions in Austria. Rather, cases are cleared by expiry of the review deadline. On the working day following the expiry of the deadline, the FCA provides the notifying party with a written confirmation that the transaction is no longer subject to the standstill obligation of Austrian merger control.
Phase I may be accelerated by up to one-and-a-half weeks upon express request by the notifying party (request for waiver). The FCA and the FCP have a wide discretion in granting requests for expedited treatment. They will generally only accept such requests (by officially refraining from applying for a Phase II investigation) if the transaction does not give rise to competition concerns, and if the parties are able to demonstrate an urgent need to have the transaction cleared before the statutory deadline.
If initiated, the deadline for Phase II is five months from the date of the Phase II request. The waiting period may be extended by one additional month upon request by the notifying party.
ii Substantive assessment
Unlike most European states, Austrian merger control still relies on the ‘dominance test’: the Cartel Court may only prohibit a transaction if it is to be expected that the transaction will create or strengthen a dominant position. Given the recent switch by Germany from the dominance to the SIEC test, however, it is not unlikely that Austria may follow suit in the medium term.
In practice, the dominance test is able to catch most economic theories of harm. The Cartel Court has investigated horizontal, vertical and conglomerate mergers. Given that the Cartel Act explicitly enshrines the concept of a ‘collective dominant position’, which corresponds to the economic model of tacit collusion, the dominance test also captures mergers that lead to an overall softening of competition on the market, even if the merged entity may not be the market leader.
Austrian law provides for a number of market share thresholds that, if met, will give rise to a rebuttable presumption of a dominant position. Most importantly, an undertaking will be presumed to hold a single dominant position if it holds a market share of (only) 30 per cent. Further presumptions exist for the existence of a collective dominant position. While these presumptions are of some importance in the early stages of merger proceedings, their practical relevance decreases in Phase II investigations, which are almost always led by an economic expert appointed by the Cartel Court.
Mergers that create or strengthen a dominant position will nevertheless be cleared if they give rise to efficiencies that outweigh their detrimental effects, or if they are ‘economically justified’ on industrial policy grounds.
The parties may address concerns voiced by the authorities by offering commitments. Often, such commitments do not result in a conditional clearance decision by the Cartel Court. Rather, the parties may offer commitments to convince the FCA or the FCP, or both, not to initiate Phase II, or to withdraw their applications after Phase II has been initiated. Under Austrian competition law, failure to comply with such commitments will be considered as a violation of the standstill obligation (see Section II.iii, supra), which may be subject to significant fines of up to 10 per cent of group turnover.
iii Third-party rights
Third parties are granted very limited rights in Austrian merger control. While they are entitled to submit observations to the FCA or the FCP, or both, during Phase I, and to the Cartel Court in Phase II, they do not gain any procedural rights by making such submissions. In particular, third parties are not granted access to the file, nor are they entitled to appeal against the Cartel Court’s decisions.
The only case in which third parties have a right to directly apply to the Cartel Court is after a transaction has received conditional clearance. Third parties may enforce compliance with obligations attached to a clearance decision by applying to the Cartel Court for remedial measures.
iv Judicial review
Decisions by the Cartel Court may be appealed to the Supreme Cartel Court, a division of the Austrian Supreme Court. Appeal lies on points of law only, which greatly limits its effectiveness, given that merger decisions usually turn on the facts of the case. Appeals by the FCA or the FCP, or both, against clearance decisions nevertheless may have detrimental effects on the parties, as the standstill obligation continues to apply until clearance has become final. The Supreme Cartel Court must make a decision within two months. However, this period only starts running once the Court’s file has been transferred to the Supreme Cartel Court. Therefore, appeals can delay the transaction by an additional period of up to four months (i.e., time for the appeal, transfer of the file, and the above-mentioned two-month period for the final decision).
IV OTHER STRATEGIC CONSIDERATIONS
i Coordinating with other jurisdictions
Austria is a Member State of the EU. The competition authorities of the EU and the European Economic Area (Norway, Iceland and Liechtenstein) share information on notifications received via an electronic system. In addition, they may coordinate on the steps of the investigation. The Austrian FCA regularly engages in informal consultations in particular with the German Federal Cartel Office when both authorities have jurisdiction over the same transaction. As a practical matter, it is therefore important to make sure that German and Austrian proceedings are closely aligned.
ii Minority ownership interests
Unlike most European merger control systems, the Austrian merger regime also applies to acquisitions of non-controlling minority shareholdings. Provided the turnover thresholds are met, acquisitions of a 25 per cent capital or voting interest will be notifiable to the FCA. In addition, the Austrian courts have held that ‘circumventions’ of the 25 per cent thresholds also give rise to a notification requirement. This applies, in particular, if the acquirer’s stake remains just short of 25 per cent, but it is granted rights similar to those of a 25 per cent shareholder.13
iii Turnover calculation
While there is an economic argument for making the acquisition of non-controlling minority shareholdings reviewable, it is much more difficult to see why Austrian law also takes them into account for purposes of turnover calculation. When determining ‘group-wide’ turnover for the purposes of assessing Austrian jurisdiction, undertakings need to take into account not only companies that are controlled by the same ultimate parent but also companies that are linked to them by means of shareholdings of 25 per cent or more, irrespective of whether these are controlling shareholdings.14 The turnover of these companies has to be included in full (i.e., not just pro rata).
iv Financial distress and insolvency
The fact that a company may be in distress does not relieve the parties to a notifiable transaction of the filing obligation. Even purchases of assets of an already insolvent company may be notifiable if the acquired assets allow the purchaser to carry on, in full or in part, the business of the insolvent seller.15
The waiting periods of Austrian merger control typically also apply in cases of financial distress. During the course of the recent economic crisis, however, the Austrian authorities have shown flexibility in clearing bank rescue transactions even before the expiry of the statutory two-week period for third-party comments.16
The Austrian courts have not yet had to decide on whether mergers that otherwise would have to be blocked should be cleared in cases of distress (failing company defence). In an obiter dictum, however, the Austrian Supreme Court referred to the recognition of the failing company defence in the European Commission’s Horizontal Merger Guidelines.17 Furthermore, given that Austrian Phase II investigations are driven by economic experts appointed by the Cartel Court, it is not unlikely that the Austrian authorities would take distress situations into account when considering the counterfactual absent the merger.
V OUTLOOK and CONCLUSIONS
In 2013, the Austrian government announced its general intention to reform Austrian competition law. On 22 September 2014, the Austrian Federal Chamber of Commerce and the Federal Chamber of Labour published their joint report on the state of Austrian competition law. Both chambers are influential stakeholders in the Austrian legislative process, not least in the field of competition law. Their report, however, focuses on antitrust enforcement, and does not propose far-reaching changes to the Austrian merger control regime. In particular, the chambers recommend not changing the institutional setup (i.e., keeping separate reviewing authorities in Phase I (the FCA, the FCP) and Phase II (the Cartel Court)). As regards the substantive test, the report also states that there is no need to change from a dominance test to a SIEC test at this stage.
Since the report’s publication, the government has launched a consultation process with regard to potential amendments to the Austrian competition rules. However, a draft bill may still be some time in the making.
Also, under current Austrian law, there is no access to the FCA’s files, and the rules on access to file in Cartel Court proceedings are in need of reform as they have been found to be incompatible with EU law.18 Although the law itself has still not been amended, some clarification as to the question of access was provided by the Supreme Court:19 the Cartel Court will allow the parties to give reasons for their refusal to access to third parties, so that the court can weigh the opposing interests in reaching a decision. While the aim of this development is clearly to strengthen private claimants’ access in antitrust damages litigation, these changes can also strengthen third-party access in merger proceedings.
1 Gerhard Fussenegger is partner and Valentina Schaumburger is an associate at bpv Hügel Rechtsanwälte OG.
2 Austrian Cartel Act 2005 as amended by the Cartel and Competition Law Amendment Act 2012 (BGBl I No. 61/2005 amended by BGBl I No. 13/2013).
3 Austrian Competition Act 2002, as amended.
4 Austrian Supreme Court, Case No. 16 Ok 49/05 Česká spořitelna, decision of 27 February 2005.
5 Austrian Cartel Court, Joint Cases No. 26 Kt 72/14 and 26 Kt 72, 73/14 – Brau Union AG, Vereinigte Kärntner Brauereien AG, decision of 24 February 2015.
6 Austrian Cartel Court, Joint Cases No. 27 Kt 40/15 and 27 Kt 41/15 – Österreichisches Rotes Kreuz, decision of 3 November 2015.
8 Austrian Cartel Court, Joint Cases No. 24 Kt 69/14 and 24 Kt 70/14 – 21 Centrale Partners/Mopedautos, decision of 15 January 2015.
9 Austrian Cartel Court, Joint Cases No. 27 Kt 65/14 and 27 Kt 67/14 – Ankerbrot, decision of 27 January 2015.
10 Austrian Cartel Court, Case No. 29 Kt 38/15 – W. Hamburger GmbH, decision of 26 November 2015.
11 Cartel Supreme Court, Case No. 16Ok3/15z, Decision of 8 October 2015.
12 Following the Cartel Supreme Court, Case No. 16Ok5/04, decision of 16 April 2004, a public health insurance must not be considered as an undertaking in the meaning of Section 1 Cartel Act / Art 101 TFEU if, in its respective behaviour, the following five criteria are fulfilled: (1) participation in administrating a system of social security; (2) acting under the principle of solidarity; (3) operating on a not-for-profit basis; (4) law-based fees and law-based obligatory services; and (5) independency between services and fees.
13 Austrian Cartel Court, Case No. 26 Kt 132/04 – Morawa/Mediaprint, decision of 5 August 2004.
14 However, the attribution of turnover in that case only extends to the company in which the non-controlling minority shareholding exists, as well as any company that is under mutual control with that company: Austrian Cartel Court, Case No. 25 Kt 435/96, decision of 13 November 1996.
15 Austrian Supreme Court, Case No. 16 Ok 6/10, decision of 4 October 2010.
16 For example, Case No. BWB/Z-1099 Republic of Austria/Hypo Alpe Adria.
17 Austrian Supreme Court, Case No. 16 Ok 6/10, decision of 4 October 2010.
18 Case C-536/11 Bundeswettbewerbsbehörde/Donau Chemie et al, judgment of 6 June 2013.
19 Austrian Supreme Court, Case No. 16 Ok 10/14b, decision of 28 November 2014.