Merger control in a corporate crisis: accelerate proceedings with thorough preparation

In Germany, M&A transactions exceeding certain turnover thresholds are subject to merger control by the German Federal Cartel Office. In cases that are unproblematic under antitrust law, merger control is usually completed within one month. In problematic cases under antitrust law, official merger control can take up to five months (or even longer in the case of a mutually agreed extension of the deadline).

The transaction can only be completed after the merger control, unless the Federal Cartel Office prohibits the merger. These deadlines are often too long for the acquisition of companies in distress or insolvency, with the risk of job losses and the failure of M&A transactions. Against this background, the question arises as to whether there are special regulations for merger control in a corporate crisis. 

Antitrust law does not provide for shortened deadlines for companies in distress

The German Act against Restraints of Competition (“GWB”) does not differentiate in merger control (with the exception of the so-called press exemption clause) as to whether the company to be acquired is economically “healthy” or in distress or even undergoing insolvency proceedings. There are no shortened deadlines for merger control proceedings, even in a corporate crisis.

However, according to the Federal Cartel Office’s decision-making practice, special rules apply to so-called “rescue mergers”. If the conditions are met, the merger will not be prohibited by the Federal Cartel Office.

Strict requirements: “rescue merger” rarely a viable solution

For a merger to qualify as a rescue merger, three conditions must be met cumulatively according to the Federal Cartel Office: 

• First, the company to be acquired must not be viable without the merger. This can be proven, for example, by an auditor’s certificate or a petition for insolvency proceedings.
• Second, no less anti-competitive (alternative) acquirer must be available. This can be proven if unsuccessful sales efforts can be demonstrated over several years. Alternatively, proof can be provided by a structured and open sales process initiated by the insolvency administrator.
• Third, it is necessary to prove that the potential acquirer would in any case gain the market position of the company to be acquired if it were to exit the market.

In practice, the evidence for such a rescue merger with regard to the latter two items can only be provided in exceptional cases. Furthermore, a rescue merger offers a (significant) time advantage only in exceptional cases.

Accelerating merger control: making preparations, seeking contact with the authorities

In practice, however, there are tried and tested ways to speed up merger control:

As a first step, possible obligations to notify the antitrust authorities and possible concerns with regard to a short-term approval of the intended M&A transaction should be identified at an early stage.

In view of the particular urgency of an M&A transaction due to ongoing or imminent insolvency proceedings, a second step should involve contacting the responsible decision-making department of the Federal Cartel Office at an early stage.

This may allow various questions to be clarified informally in advance of the notification. By involving the Federal Cartel Office at an early stage, the actual procedure can be significantly shortened – depending on the complexity of the transaction and the questions to be answered.

Experience has shown that the Federal Cartel Office is always keen to facilitate a takeover of a company whose existence is jeopardized at short notice, thereby ensuring the company concerned and its jobs will be preserved, provided there are no serious concerns regarding the transaction’s eligibility for approval. You can take advantage of this, but you have to do your “homework”.

Conclusion: Treat merger control as a central component of the transaction right from the start 

Even in a corporate crisis, no shortened deadlines or special rules apply to merger control. The principles of the “rescue merger” only apply in exceptional cases. Nevertheless, the duration of merger control proceedings can be significantly shortened in the interests of the companies involved if the issue of “merger control” is understood as a central component of the transaction from the outset and the Federal Cartel Office is involved at an early stage.