Under the presidency of Andreas Mundt, Germany's Federal Cartel Office has become a major obstacle to mergers.
Frustrated by hold ups, many companies have abandoned their plans to merge. In 2011/12 alone, six of the ten declared mergers that were officially examined were later cancelled.
The reason is often the narrow definition that the Cartel Office uses to establish market dominance in an industry. “You have no chance against the arbitrary analysis of data sets and the constant stream of new market demarcations,” complained one affected businessman.
The mentality is drawing comparisons to the fusty days of yesteryear, when decisions by the Cartel Office tended to be parochial and lacking wider business sense. On top of this, the Cartel Office, based in Bonn, has reportedly turned more hostile to mergers.
The Cartel Office has reportedly turned hostile to mergers.
The preliminary decision on the proposed takeover of the Kaiser’s Tengelmann supermarket chain by rival Edeka is proof of the almost incomprehensible approach it takes. Mr. Mundt rejected the move with the rationale that “the merger would lead to a consolidation of already significantly concentrated market structures in some major cities.”
Experts in antitrust law were bemused by the decision. “It is usually the approach of the Cartel Office to at least differentiate regionally regarding the markets in food retailing,” said Marc Besen, an antitrust specialist and partner at Clifford Chance LLP.
A rejection of Edeka’s takeover would follow the blocked mergers of mega corporations such as Deutsche Börse and the New York Stock Exchange or logistics firms UPS and TNT.
Unlike other competition authorities, the Federal Cartel Office bases its decisions “exclusively on criteria of competitiveness.” Whether or not a merger makes business sense or creates jobs is not factored in. In the United States or France on the other hand, such criteria are taken into consideration.
The Cartel Office is also being criticized for basing its decisions on mergers solely on regional or, at best, national competition, without taking into account companies’ global strengths. Such thinking allegedly caused machine builder Voith to call off the planned sale of its diesel engine division to rival Vossloh after company lawyers received warnings from the Cartel Office.
No one in either company wants to talk on record about the issue. But one thing is clear: The two Kiel-based manufacturers would have remained a small provider on the global market, but in Germany they would have had a market share of 60 percent. The antitrust legislation of 2013 calls for mergers to be prevented when they fall over a threshold of 40 percent.
In China, competitors can only laugh at this. At the beginning of January, the government in Beijing proclaimed the merger of its two largest train manufacturers, CNR and CSR, as creating the “leading global railroad supplier.”
To add to German companies’ frustration, the Cartel Office can charge merger hopefuls up to €100,000 ($114,000) in fees, even if a proposal is withdrawn. The competition authorities in Brussels, on the other hand, do not require any fees.
Kaiser’s Tengelmann CEO Karl-Erivan Haub, for example, can absorb the fees. After all, the cost of having to close his 451 supermarkets if the merger is rejected would be much worse.
Another exasperating example of the Cartel Office’s methods comes from down south in Bavaria.
The town of Lobsing has exactly 389 residents. Its local cooperative bank employs 32 people and makes sure that the local farmers get their seeds on time. But it came under scrutiny from the Cartel Office when the Munich-based agricultural equipment company BayWa wanted to increase its existing share in the bank.
The Federal Cartel Office can clearly do what it wants. Florian Hoffmann, Director, European Trust Institute
The agency knew no mercy. BayWa’s move was met with a gruff rejection in advance. Ultimately, it ruled that a closer union threatened to become a market dominating position – at least in Lobsing and the 20-kilometer surrounding area. The business partners withdrew their application in bewilderment.
“The Federal Cartel Office can clearly do what it wants,” says Florian Hoffmann, director of the European Trust Institute, a think-tank.
Since the legal path for recourse – through higher regional courts up to the Federal Supreme Court – often takes four years or more, most potential merger partners give up in advance.
Even in cases where they have won legal battles, such as the hearing aid provider GN ReSound’s battle to overturn its sale to rival Phonak in 2010, the judge’s ruling matters little. By the end of the drawn out legal process, Phonak had lost interest in the purchase.
Some decisions at the Cartel Office, which are made by no more than three bureaucrats at a time, seem incomprehensible.
Last November, the Bonn-based agency approved the merger of the newspaper Westfälischen Nachrichten and its local competitor Münstersche Zeitung. Mr. Mundt explained that because the latter was in “financial difficulties” its “market position would have fallen regardless of the purchaser.”
The fact that the buyer, Aschendorff Verlag, was gaining a unique position in Münster’s newspaper business did not stop Mr. Mundt.
Things were very different in Berlin 12 years earlier. When the daily newspapers Der Tagesspiegel and Berliner Zeitung announced a merger, the Cartel Office blocked the deal. It justified the decision by saying the 61 percent market share the two newspapers would have gained was a “market dominating position in the market of newspaper subscriptions.”
The author is a Handelsblatt editor specializing in the consumer goods industry. To contact the author: [email protected]