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Supreme Court rules on merger notification of FUNKE Group/WAZ Holding/Krone including change from joint to sole control: hypothetical merger notifications inadmissible

Examination of merger unearthed complex issues of company law, specifically in connection with the submitted shareholders’ agreements

On 30 December 2019, FUNKE Österreich Holding GmbH and WAZ Ausland Holding GmbH (“the notifying parties”) notified the planned change from joint to sole control by WAZ Ausland Holding GmbH of KRONE-Verlag Gesellschaft m.b.H., KRONE - Verlag Gesellschaft m.b.H. & Co. Vermögensverwaltung KG., KRONE - Verlag Gesellschaft m.b.H. & Co. KG. and Krone Media Aktiv Gesellschaft m.b.H. to the Austrian Federal Competition Authority (AFCA) as a merger.

In the course of examining the merger, complex issues pertaining to company law arose, specifically in connection with the submitted shareholders’ agreements, which raised serious concerns as to whether the notified transaction was eligible for notification.

Specifically, the parties are in dispute over the validity and extent of submitted shareholders’ agreements, which are also the subject of pending (arbitration) court proceedings. As it is doubtful whether such a merger can even be notified, the official parties AFCA and Federal Cartel Prosecutor filed applications in January 2020 to reject the requests for examination due to these notified transactions not being notifiable and, as an alternative, to examine the merger. At the time of the notification, material issues of company law had not been definitively settled by the companies. The official parties therefore argued that the exact structures of the merger were not clear.

As the official parties cannot reject an inadmissible merger notification for lack of a legal basis, they applied to the Cartel Court to have their respective requests for examination rejected, with such a rejection of a request for examination also entailing rejection of the notification.

Cartel Court rejected requests - Notifying parties appealed

The Cartel Court granted the application of the official parties AFCA and Federal Cartel Prosecutor and rejected the requests for examination of the merger on the grounds that the notified transaction was not notifiable.

The notifying parties appealed against the Cartel Court’s decision and applied for an amendment of the decision or its full reversal to the effect that the notified merger was not prohibited.

The Supreme Court ruled on 25 January 2021 not to allow the notifying parties’ appeal, confirming the Cartel Court’s appealed decision.

Competition authorities should not deal with hypothetical scenarios

The Supreme Court stated as reasons for its ruling that merger control was intended to reasonably maintain and promote competitively structured markets. Its aim was not to protect individual competitors. A merger only becomes effective when there is a possibility of exerting economic control. Accordingly, a notification is only possible when the exact structures of the merger have been agreed and a timetable for implementation has been laid out. Subsidiary motions should not be considered in merger examinations since competition authorities should not have to deal with hypothetical scenarios.

In this particular case, the core question was whether the voting rights situation in the companies concerned would change as a consequence of the acquisition of shares by way of succession, resulting in a change of the control situation. Determining whether an acquisition as defined in § 7 para. 1 of the Federal Cartel Act (KartG) exists depends on the assessment of basic issues of company law. However, the Cartel Court should only examine whether undisputed structures of the claimed merger exist that make the merger subject to notification; it must not rule on controversial issues pertaining to company law upstream of this matter.

Since no basic agreement has been reached in this case about the exact structures of the claimed merger, with the changed rights of control (on which the notification was based) in fact being highly disputed, the Supreme Court found the notified transaction not to be notifiable overall.

In summary, it is not the responsibility of merger control to decide on the effectiveness or validity of a future acquisition. A notification that is to be deemed “hypothetical” therefore cannot be notified since, as already mentioned, acquisitions are only assessed from a competition point of view in merger control procedures.

Cf. Supreme Court of Justice of 25 January 2021, 16 Ok 5/20a (in German)