I OVERVIEW OF M&A ACTIVITY
As a recent study in M&A Review (January 2016) reports, Austria saw approximately 330 deals in 2015, an increase of 37 per cent from 2014. This makes 2015 one of the country’s top 10 years since 1988, with the period spanning 2000 to 2007 being the strongest, peaking in 2005 with over 500 deals. For both public M&A as well as private M&A activities, an increase can be reported for 2015 and early 2016.
As in recent years, the most sought-after targets in 2015 were in the consumer goods and retail sector (although lower than in 2014), the financial sector and TMT. It was also a strong year for paper and packaging, which more than doubled in terms of the number of deals. Important sources for the increase in deal volume were distressed situations as well as the continued restructuring of banks.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
The main corporate law statutes are the Stock Corporation Act and the Limited Liability Company Act for corporations and the Enterprise Act for partnerships. The Takeover Act and the Stock Exchange Act are relevant for listed companies (in relation to, e.g., public takeovers, stake-building, ad hoc disclosures, insider trading), whereas for private companies they do not apply. Merger control issues are governed by the Cartel Act, unless the EU Merger Regulation applies. In relation to corporate reorganisations, such as mergers, spin-offs, squeeze-outs etc., in particular the EU Merger Act, the Demerger Act, the Shareholder Squeeze Out Act and the Transformation Act complement the general corporate law statutes, while from a tax perspective the Reorganization Tax Act provides for roll-over treatment under certain conditions. From a general tax perspective the Corporate Income Tax Act as well as the Individual Income Tax Act are of most relevance. Transfer taxes, etc., would be primarily subject to the Stamp Duty Act and the Real Estate Transfer Tax Act. In the employment law area, the Labour Constitution Act and the Act on the Amendment of Employment Contracts (AVRAG) are to be taken into account. In addition, for specific industries, sector-specific laws apply, such as the Banking Act, the Insurance Supervisory Act and the Telecom Control Act.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
In 2015 and early 2016, the public M&A activity had been substantial. Some of the transactions are covered below, in particular those relating to the real estate sector. Inter alia, the increase in partial takeover bids was notable. These aim to stay below the formal control threshold of 30 per cent (unless lowered in the articles of association, as implemented by several Austrian companies, in particular in the recent past), which triggers a mandatory bid obligation for all shares in the target, or are even limited to only 26 per cent, which is the ex lege cap of exercisable voting rights (unless another shareholder holds voting rights in excess of that threshold or a bid is launched). Often though, they are followed by subsequent bids, which usually trigger a mandatory offer. The following deal was different, however. In 2015, Airports Group Europe, an indirect subsidiary of IFM Global Infrastructure Fund, launched a voluntary partial bid to acquire 29.9 per cent in Flughafen Wien AG, the operator of Vienna International Airport, and successfully acquired shares just below the 30 per cent threshold. In 2016, it launched a voluntary partial bid to acquire a further 10 per cent for up to €210 million, not following the rules of a mandatory bid, based on the argument that despite exceeding the formal control threshold of 30 per cent, no mandatory bid obligation is triggered, since two shareholders are acting in a syndicate that in total controls 40 per cent of the voting rights.
In the takeover law area, some procedural rules have also changed. Since 2014, appeals against decisions of the Austrian Takeover Commission are heard by the Austrian Supreme Court, and not by the Austrian Administrative Court or the Austrian Constitutional Court (with the exception of administrative penalties). Due to Accounting Directive 2013/34/EU regarding annual financial statements as well as consolidated financial statements, the Austrian accounting rules were modified to comply with the EC law, with this being the most extensive reform since 1996. The new rules will be applicable for fiscal years starting after 31 December 2015.
Although dating back to 2013, an important legislative change relevant to public M&A deals related to tightened disclosure obligations in relation to significant stakes in listed companies by lowering the disclosure threshold to 4 per cent instead of 5 per cent (and companies may lower it even further to 3 per cent in their articles of association) and by including of financial instruments that do not grant enforceable rights to acquire shares (such as cash settled equity swaps). Failure to properly disclose may result in a temporary suspension of voting rights. Another noteworthy change of particular interest to foreign investors is the obligation of majority shareholders to file for insolvency if the relevant triggers (that being illiquidity or over-indebtedness with a negative going concern prognosis) are met, to the extent that the Austrian company has no managing director.
As to private M&A, an important legislative development related to the duration of shareholders’ agreements, which, according to the prevailing majority in Austria, are considered civil law partnerships (such qualification will depend on the specific provisions of such shareholders’ agreements, according to some scholars). Typically, the term agreed upon in shareholders’ agreements is for as long as the parties to the agreement are shareholders of the company, which can be seen as concluded for an unlimited term. Due to an amendment of the Austrian Civil Code passed in 2014, a termination right set forth in the Austrian Enterprise Act for unlimited partnerships was also extended to civil law partnerships. Following this change to the law, and if a specific shareholders’ agreement was seen as a civil law partnership providing for no termination rules or for an indefinite term, a party to the shareholders’ agreement would have been entitled to terminate such with six months’ notice as of the end of each business year. Whereas a grandfathering rule until 2021 was available for existing shareholders’ agreements established before 2015 if one party to the agreement notified all other parties that it wishes to continue applying the old law, new shareholders’ agreements had to provide for a fixed term to avoid such termination right (to foresee the automatic renewal of such fixed term in cases where no termination had been declared was, however, considered acceptable). On 1 July 2016, a limitation to this new rule entered into force, taking back the apparently undesired impact on shareholders’ agreements, according to which this termination right shall not apply to ‘internal partnerships’, which will probably be the case for most shareholders’ agreements. Despite this recent change in the law, a careful case-by-case analysis and wording of shareholders’ agreements is highly recommendable.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
Statistics published in M&A Review show that more than one-third of all 2015 deals were domestic, and that in cross-border deals the number of foreign investors acquiring Austrian targets slightly exceeded the number of Austrian investors buying into the foreign markets. In the cross-border context, (foreign) ownership restrictions are another area of interest to many investors (note the also relatively low merger control thresholds in Austria).
The acquisition of ownership and certain lease interests in real estate by non-EEA nationals or the acquisition of control over companies owning such interests is subject to notification or approval by the local real estate transfer commission. What interests are covered and whether notification or approval is required varies among the legislation of the nine states in Austria. Where the real estate is used for commercial rather than residential purposes, approvals are usually granted.
Under the Foreign Trade Act introduced in 2011 and amended in 2013, the acquisition of an interest of 25 per cent or more or a controlling interest in an Austrian business by a foreign investor (for the purposes of this law, that is an investor domiciled outside of the EU or EEA and Switzerland – if the investor, on the other hand, is resident in such region, no advance approval is required, but ex officio investigations can be initiated without time limit) is subject to advance approval by the Austrian Minister of Economic Affairs where that business is involved in internal and external security, for example, defence and security services; or public order and security, including public and emergency services, such as hospitals, emergency and rescue services, energy and water supply, telecommunications, traffic or universities and schools. Transactions subject to approval cannot be completed pending approval. Approval is subject to criminal sanctions including imprisonment.
In regulated industry sectors (e.g., banking, insurance, utilities, gambling, telecoms or aviation), the acquisition of a qualified or a controlling interest is typically subject to advance notification to, or approval of, the competent regulatory authority. Sanctions for failure to notify or obtain approval in advance differ, and range from monetary penalties to ordering a suspension of voting rights, or a partial or total shutdown. Note that these rules are not targeted at foreign investors, but often approvals are more difficult to obtain than they are for domestic investors.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
In 2015 and early 2016, activity in the real estate sector was remarkable. International investors had already shown interest in listed Austrian real estate companies for some time, although in recent years, local players often outbid international investors. However, the opposite has been seen recently.
While a voluntary public bid based on a valuation of nearly €1.2 billion by Deutsche Wohnen for all shares in Conwert failed because the acceptance threshold of 50 per cent (under the Austrian Takeover Act) was not met, the Austrian Haselsteiner family sold its 24.7 per cent participation in the company to Israeli investor Teddy Sagi for close to €230 million in Q2 2015, who in turn sold the stake to the German real estate company Adler for €285 million in Q3 2015. Adler failed to change the majority of the existing board, but succeeded in having it increased by one member suggested by Adler. According to media reports, the Austrian Takeover Commission is investigating whether Adler and other shareholders were acting in concert, which would trigger a mandatory bid obligation under Austrian takeover law.
The listed real estate companies CA Immo and Immofinanz are also in the spotlight. After acquiring in total 26 per cent in CA Immo through a combination of a block trade from Unicredit as well as a voluntary partial offer, Russian O1 Group this year agreed to sell its entire stake to Immofinanz for approximately €604 million. The acquisition of the CA Immo stake is a first step towards a planned full combination of Immofinanz and CA Immo by way of a statutory merger. Prior to the envisaged merger, Immofinanz is planning to demerge or sell its Russian asset portfolio. This is quite a spectacular response to events in 2015. With the backing of O1, CA Immo launched a voluntary partial bid for 15 per cent in Immofinanz for up to €423 million, which responded with the announcement of a reverse (voluntary partial) bid for up to 29 per cent in CA Immo for up to €530 million, after losing out to O1 in the auction for the 16.8 per cent stake in CA Immo sold by Unicredit. As a defence measure, Immofinanz lowered the threshold that triggers a mandatory bid obligation from the statutory 30 per cent to 15 per cent, while CA Immo increased the majority to remove supervisory board members to a 75 per cent majority, making it more difficult for Immofinanz to change the supervisory board of CA Immo, had they acquired up to the suggested 29 per cent. In response, Immofinanz dropped its plan for last year’s bid.
Immofinanz’s former subsidiary BUWOG also lowered the formal control threshold, but to only 20 per cent – again, as a takeover precaution. BUWOG was also one of the noteworthy initial public offerings (IPOs) in 2015, and is now listed in Frankfurt, Vienna and Warsaw. The IPO was implemented via a spin-off to the market, in the same way that Siemens placed Osram on the market. The Austrian Takeover Commission confirmed in a ruling that no mandatory offer was triggered in this case.
The largest property deal in 2014, with a purchase price of €315 million, concerned the Millennium Tower in Vienna. The current owners, Morgan Stanley and CC Real, after completing a major renovation and modernisation, are said to be putting the property on the market again. The expected deal volume shall amount to approximately €350 million. In late 2015, Morgan Stanley also acquired The Mall shopping centre from Bank Austria (Unicredit) for approximately €500 million, making it the property deal of the year. Another noteworthy property deal was the sale of IZD Tower by a joint venture of Signa Recap and the German insurance group R+V to CBRE Global Investors (which acted for Asian investors) in early 2016. Again in the hotel segment several deals can be reported: Starwood Hotels and Resorts sold 5-star hotel Imperial to Al Habtoor Group, a UAE-based investment company, for approximately €70 million. A joint venture of Highgate Hotels and Goldman Sachs acquired K+K Hotelgruppe, with 10 hotels situated across Europe, from its Austrian owners. Currently, Austrian insurer Uniqua is reported to be auctioning the Vienna Sofitel for an expected purchase price of approximately €100 million.
The sale of private companies often takes place by auction. There is no specific legislation for such auction processes. However, when a state-controlled seller is involved, as with sales procedures for nationalised banks, the process should be transparent and non-discriminatory to provide for a proper defence, under EU state aid regulations, against any argument of unsuccessful bidders that the seller effectively granted a subsidy by selling to the prevailing bidder. In late 2014, the Southeast European operations of Hypo Alpe Adria Bank, which had been fully nationalised in 2009, were sold to a consortium formed by the private equity investor ADVENT and the European Bank for Reconstruction and Development. In early 2015, UK-based Attestor Capital and private investor Patrick Bettscheider agreed to acquire a 99.78 per cent stake in the formerly nationalised Kommunalkredit Austria AG from state-owned Finanzmarktbeteiligung Aktiengesellschaft des Bundes for a purchase price of up to €150 million. In a preliminary step, toxic assets were spun off to bad bank KA Finanz. The discussed sale of the retail division of Unicredit to former union bank BAWAG, which is majority-owned by Cerberus, did not proceed. BAWAG itself is an ongoing candidate to be sold. Further transactions in the banking sector included Wiener Privatbanken SE’s acquisition of the Austrian banking operations of Valartis Bank (Austria) AG through an asset deal.
Packaging was one industry that has seen high deal volume. The most prominent deal involved France’s Wendel Group, which acquired a majority stake in Constantia Flexibles in late 2014. Throughout 2015, it sold a stake of 25 per cent to Herbert Turnauer Foundation for €100 million and a stake of 10 per cent to Munich private equity investor Maxburg Capital Partners for €100 million. It is being reported that Wendel will continue to search for potential minority investors. Constantia Flexibles itself reported the successful takeover of the South African packaging company Afripack as well as the acquisition of Vietnamese aluminium manufacturer Oai Hung. One Equity Partners and private investor Christine de Castelbajac (the daughter of Herbert Turnauer) successfully sold the packing company Duropack to the listed British packaging company DS Smith for approximately €300 million, representing a post-synergy EBITDA multiple of 5.7. Other deals in the packing industry include Dunapack Packaging, which is part of the Austrian Prinzhorn Group, purchasing Greek Viokyt Packaging, and the acquisition of the European tobacco packaging and general packaging divisions of MeadWestvaco by Swedish AR Packaging.
The new economy is becoming an increasingly sought-after target for strategic investors. The most notable transaction relating to this was Adidas’s acquisition of all shares in Runtastic, the Austrian mobile fitness app maker, based on an enterprise value of €220 million, from the majority shareholder Axel Springer (which acquired its stake in 2013 based on an enterprise value of €22 million), as well as the target’s founders and business angel Hansi Hansmann. Another prominent deal was the acquisition of a 60 per cent stake in Aktionsfinder GmbH, an Austrian online distribution platform for leaflets, Österreichische Post, the listed Austrian mail company.
In the distressed field, there was less activity recently than in 2013 (then mainly in relation to the €2.6 billion bankruptcy of Austrian construction company Alpine). One trend continuing from recent years, however, was that of bank-driven restructurings that resulted in the auctioning of non-core or non-performing assets. In most cases, these restructurings related to the retail sector. The number of cases where banks push for auctions of borrowers before the insolvency stage also increased. After taking over Bene in early 2015 through a purchase of a 90.24 per cent stake in the company (for which no mandatory bid obligation was triggered due to an exception under Austrian takeover law) and following a squeeze-out of the minority shareholders in late 2015, a vehicle of Austrian private investors named BGO purchased Neudörfler Office Systems. Other private investors purchased the Austrian office furniture manufacturer Swoboda. Another deal in that sector was the acquisition of the business of Gruber + Schlager, which had been subject to insolvency proceedings, by Hali Büromöbel, an Austrian-based office furniture manufacturer. Other examples are the DIY retailer Baumax and the shoe retailer group Leder & Schuh, which auctioned its German operations.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
Corporates have found that the financing environment has rather improved, in particular for those with strong financials. Banks have also been more active in approaching blue-chip companies, so financing opportunities for acquisitions are quite good.
The financing environment for buyout transactions has remained more or less unchanged, and is quite different for domestic market participants (as opposed to international players), which typically seek financing from domestic banks, and international financial sponsors, which are able to tap international banks (at least on large-cap deals). Leverage levels for large-cap transactions have gone up slightly to around 5x EBITDA, and relative debt-to-equity ratios of 40 to 50 per cent. Small to mid-cap transactions are sometimes financed through equity alone, or by domestic or German banks. Leverage levels and relative debt-to-equity ratios generally tend to be lower for small to mid-cap transactions than for large-cap deals.
Where leverage is employed on small and mid-cap transactions, there is usually only senior and institutional debt, as mezzanine structures tend to add another layer of complexity that is often not supported by the limited transaction size. On large-cap transactions, mezzanine financing is sometimes considered but, given the limited transaction size, is ultimately rarely employed. High-yield instruments are usually considered only for post-completion refinancing, as the time and cost involved tend to be disproportionate to any gains on the pricing side.
In general, we also see an increase in vendor loans and similar solutions to bridge the financing gap, if any.
Experience shows that certain limitations under Austrian corporate law are often unexpected for foreign investors when structuring a deal, particularly in relation to intragroup (financing) transactions: Austrian law generally prohibits the return of equity to shareholders (i.e., up and side-stream transactions) of both a limited liability company as well as a stock corporation (and are applied by the Austrian courts by analogy to limited partnerships with only a limited liability company or stock corporation as unlimited partner). Based on this principle, Austrian courts have established that a company cannot make any payments to its shareholders outside arm’s-length transactions except for the distributable balance sheet profit, in a formal reduction of the registered share capital, or for the surplus following liquidation.
The prohibition on return of equity covers payments and other transactions benefiting a shareholder where no adequate arm’s-length consideration is received in return. To the extent a transaction qualifies as a prohibited return of equity, it is null and void between the shareholder and the subsidiary (and any involved third party if it knew or should have known of the violation). It may result in liability for damages. Most of the above principles are also applied by the Austrian courts by analogy to limited partnerships with a limited liability company or stock corporation as (the sole) unlimited partner.
Austrian courts have developed case law suggesting that a subsidiary may lend to a shareholder, or guarantee or provide a security interest for a shareholder’s loan if it receives adequate consideration in return; has determined (with due care) that the shareholder is unlikely to default on its payment obligations and that even if the shareholder defaults, such default would not put the subsidiary at risk; and that the transaction is in the interest of the Austrian subsidiary (corporate benefit).
In addition, the Austrian Stock Corporation Act prohibits a target company from financing or providing assistance in the financing of the acquisition of its own shares or the shares of its parent company (irrespective of whether the transaction constitutes a return of capital). It is debated whether this rule should be applied by analogy to limited liability companies. Transactions violating this rule are valid, but may result in liability for damages.
VII EMPLOYMENT LAW
In case of a transfer of a business within the meaning of the Act on the Amendment of Employment Contracts implementing Directive 2001/23/EC on safeguarding employees’ rights on transfers of undertakings, businesses or parts of businesses (the Transfer of Undertakings Directive), the employment relationships of the employees associated with the business transfer together with the business to the purchaser (Section 3 Act on the Amendment of Employment Contracts). Employees can object to the transfer of the employment relationship within one month if the purchaser does not maintain dismissal protection pursuant to a collective bargaining agreement or take over pension commitments based on a single contract. This does not apply if the seller ceases to exist (e.g., in the case of a legal merger).
The Austrian Supreme Court has held that a dismissal of employees in the course of an asset sale (both by the seller and the acquirer) is against good morals (bonos mores) unless there are valid economic, technical or organisational reasons unrelated to the asset sale. If dismissals occur in close proximity of an asset sale, there is a (rebuttable) presumption that such exceptions do not apply. In addition, the general rules of Austrian employment law concerning appeals against dismissals apply.
There is no special protection against a dismissal in the context of a share sale (i.e., where not the business as such but the company is transferred). Only general rules of Austrian employment law concerning appeals against dismissals apply.
Another area of interest to investors is whether there are obligations to inform or consult employees or their representatives, or obtain employee consent to a share sale or an asset sale. If a works council is established at the target company, the target company must inform the works council in accordance with Section 109 of the Labour Constitution Act and consult with the works council on request in relation to a share deal. If no works council is established, no information or consulting requirements apply. In relation to an asset deal, the following has to be observed. The Labour Constitution Act provides for information and consultation rights of the works council in general, as well as specifically in relation to certain transactions and changes to the business. The information must be given sufficiently in advance, in writing and in a manner that allows the works council to assess the relevant transaction or change. The information must specifically include the reason for the transaction or measure, the legal, economic and social consequences as well as any associated measures that may affect employees. The works council must be given the opportunity to comment on the transaction and propose measures mitigating adverse effects for the employees. Where no works council is established, an asset sale only triggers information requirements if a transfer of a business is concerned. In that case, the seller or the purchaser must provide certain information to the employees affected. Affected employees, however, do not have any consultation rights. There is no obligation to obtain the consent of the employees affected. However, where by operation of Section 3 of the AVRAG a transfer of a business results in the transfer of an employee to the purchaser together with the business, the employee can object to the transfer in certain limited circumstances (see above).
VIII TAX LAW
As the goodwill amortisation regime on share deals (up to 50 per cent of the purchase price over a period of 15 years) is no longer available (only for acquisitions made until 28 February 2014), foreign investors will usually seek a structure that allows for a tax-free exit. As there is no tax exemption for capital gains realised from the sale of shares in an Austrian company (as opposed to shares in a foreign company), foreign investors now more often choose an acquisition vehicle in a foreign country with which Austria has concluded a double taxation treaty that provides that only such other jurisdiction is entitled to tax capital gains.
On the other hand, an Austrian acquisition vehicle allows the establishment of a tax group between the acquisition vehicle that incurred the debt and the target, which enables the purchaser to offset the interest expenses for the acquisition from the operational profits of the target.
Furthermore, foreign investors will usually opt for structures that avoid or minimise withholding tax. Besides dividends, this applies in particular to interest that may be payable on shareholder loans. While in the past withholding taxes on interest were triggered where the loan was secured by real estate located in Austria, no such withholding tax applies under the amended laws. However, a new regime provides for non-deductibility of interest expenses in Austria if the interest is not taxed at the level of the recipient at an effective tax rate of 10 per cent or more.
The tax group regime,which allows for an offsetting of profits and losses within a group, was further reformed to limit the eligible foreign entities to such residents in EU Member States or other countries with which Austria has concluded comprehensive administrative assistance procedures. In addition, losses of foreign group members can only be offset up to 75 per cent of the taxable income of those Austrian entities, with the balance being carried forward to future years.
Equity funding is now simplified, as the 1 per cent capital duty on equity contributions by the direct shareholder of an Austrian company was repealed. In the past, contributions were often made by upper-tier companies (‘grandparent contributions’) so as to avoid that tax. As of the beginning of 2016, this is no longer required. We also expect simplified deal structures from that perspective.
Besides the above-mentioned developments, tax audits in relation to M&A deals are becoming more common and burdensome. In particular, transfer pricing issues, for example in relation to interest on shareholder loans or certain fees payable to related entities, are under increased scrutiny. Accordingly, tax rulings are also becoming more popular.
A recent tax reform should not have a major impact on M&A transactions, with the exception of real estate deals (see below). The increase in the increased tax rate applicable to dividends and capital gains from 25 to 27.5 per cent (to which exemptions apply either under domestic law or the applicable tax treaties) is however noteworthy. The changes to the Austrian exit tax regime could also have negative impacts on transactions in the form of corporate reorganisations that aim to qualify for a rollover treatment. Past reforms, although not targeted at transactional taxes as such, often had indirect consequences. For example the new taxation regime for investment income required substantial adaptations to existing management incentive schemes.
For real estate deals, the tax reform has brought significant changes for companies directly owning Austrian real estate. First, the taxable event ‘unification of shares’ that used to require a unification of all shares in a company that directly owns Austrian real estate by one shareholder now foresees a lower threshold of 95 per cent. Furthermore, shares held by trustees shall be attributable to the trustor in determining this and other similar thresholds. Second, if within five years in total 95 per cent or more interests in a partnership that directly owns real estate are transferred (also if in a different transaction and to different purchasers), real estate transfer tax is now triggered.
IX COMPETITION LAW
The following types of concentrations are subject to merger control (intragroup transactions are exempt) under the Austrian Cartel Act:
- a the acquisition of an undertaking or a major part of an undertaking, especially by merger or transformation;
- b the acquisition of rights in the business of another undertaking by management or lease agreement;
- c the (direct or indirect) acquisition of shares, if thereby a shareholding of 25 or 50 per cent is attained or exceeded;
- d the establishment of interlocking directorships where at least half of the management or members of the supervisory boards of two or more undertakings are identical;
- e any other concentration by which a controlling influence over another undertaking may be exercised; and
- f the establishment of a full-function joint venture.
A concentration must be notified to the Federal Competition Authority (FCA) if the following cumulative thresholds, which in the international comparison are rather low, are fulfilled (based on the revenues of the last business year):
- a the combined worldwide turnover of all undertakings concerned exceeds €300 million;
- b the combined Austrian turnover of all undertakings concerned exceeds €30 million; and
- c the individual worldwide turnover of each of at least two of the undertakings concerned exceeds €5 million.
However, even if the above thresholds are satisfied, no obligation to notify exists if the Austrian turnover of only one of the undertakings concerned exceeds €5 million; or if the combined worldwide turnover of all other undertakings concerned does not exceed €30 million.
For calculating the turnover thresholds, the revenues of all entities that are linked with an undertaking concerned as defined under the Cartel Act are considered one entity (thus the turnover of a 25 per cent subsidiary must be attributed fully). Indirect shareholdings only have to be considered if the direct subsidiary (of at least 25 per cent) holds a controlling interest in the indirect subsidiary. Revenues of the seller are disregarded (unless the seller remains linked with the target undertaking as defined under the Cartel Act). Specific provisions for the calculation of turnover apply for mergers in the banking, insurance and media sectors.
Transactions that are notifiable in Austria may have an EU dimension under Article 1 of Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation). In that case, the European Commission generally has sole jurisdiction to assess the case. However, the Cartel Act contains specific rules regarding media mergers, which require a filing with both the European Commission and the FCA.
The relevant merger authorities in Austria are the FCA and the Federal Cartel Prosecutor, collectively referred to as the official parties; and the Cartel Court.
The official parties assess notifications in Phase I proceedings. Should a notification raise competition concerns, either official party may apply to the Cartel Court to open Phase II proceedings. Decisions of the Cartel Court may be appealed before the Supreme Cartel Court. The Competition Commission is an advisory body that may give (non-binding) recommendations to the FCA as to whether to apply for an in-depth Phase II investigation of a notified transaction.
A notifiable transaction must not be implemented prior to formal clearance. Possible sanctions for the infringement of this suspension clause are that the underlying agreements or acts are null and void; or that the undertakings may be fined up to 10 per cent of their worldwide annual turnover (by the Cartel Court on application of the official parties).
Non-compliance with remedies imposed on the parties is equivalent in seriousness to breaching the suspension clause and may lead to similar fines.
A merger must be prohibited if it is expected to create or strengthen a dominant market position. An undertaking is generally considered market dominant for that purpose if it can act on the market largely independently of other market participants (the Austrian Cartel Act contains a rebuttable presumption of market dominance if certain market share thresholds are achieved). Even where a merger is expected to create or strengthen a market dominant position, it must nevertheless be cleared if either it will increase competition, and therefore the advantages gained by implementing the transaction will outweigh the disadvantages; or it is economically justified and essential for the competitiveness of the undertakings concerned.
A media merger will be assessed not only against its compatibility with competition rules, but also as to its adverse effects against media plurality.
The outlook for the rest of 2016 is rather difficult due to macroeconomic developments (e.g., Brexit) that may change the current investment environment in Europe and internationally. Generally, the first half of 2016 was active, so based on the assumption that the economy remains stable, the Austrian M&A market should continue its strong performance. This is also supported by the fact that, in particular, private equity firms hold substantial cash reserves to be invested, and many of their portfolio companies are overdue being sold again.
1 Clemens Philipp Schindler is a partner at Schindler Rechtsanwälte GmbH.