But even timely notification of foreign-to-foreign mergers does not guarantee unconditional merger clearance. In circumstances where competition issues are identified during the merger review, the parties concerned are required to engage in negotiations with both the AFCA and the Federal Competition Prosecutor (collectively referred to as the “Official Parties”). Unlike in many other jurisdictions, the Official Parties are open to behavioral commitments, not strictly requiring structural remedies. This often results in a multitude of restrictions that parties are required to adhere to for years, if not decades. While more common in cases involving domestic players, such remedies have also been imposed in foreign-to-foreign mergers.
This article aims to tackle these intricacies of Austrian merger control, underlining its critical relevance for foreign companies when assessing merger notification obligations within Europe.
Transaction Value Based Merger Review
The thresholds necessitating a merger filing in Austria are among the most stringent in Europe. In addition to relatively low turnover thresholds, the Austrian merger control regime includes transaction value thresholds. These additional thresholds play a crucial role in identifying potential "killer acquisitions", the economic or competitive significance of which is not reflected primarily in the turnover of the companies concerned. This is especially pertinent in sectors such as technology and pharmaceuticals, where acquisitions of start-up (or scale-up) companies are prevalent. Therefore, a transaction that does not meet the "classic" turnover thresholds, still requires merger control approval in Austria if:
- the value of the consideration payable in terms of the transaction is above EUR 200 million;
- the parties' combined revenue exceeds EUR 300 million worldwide and EUR 15 million in Austria; and
- the target company has significant domestic activity.
The term “consideration” encompasses all assets and other services of monetary value (i.e., the purchase price) received by the seller from the purchaser in connection with the transaction, together with the value of any liabilities assumed by the purchaser.
“Significant domestic activity” is typically established if the target company has a presence in Austria. However, this criterion can also be met in cases where a target has no physical presence, whereby key recognized industry measures, such as location, Research & Development activities, “monthly active users”, “unique visitors”, etc. are applied. In addition to establishing a local nexus, domestic activity must reach a significant level. In a guidance paper, the AFCA states that it will routinely find that there is no significant domestic activity on the part of a target company if its Austrian turnover is below EUR 1 million, provided that this accurately reflects the target’s market position and competitive potential. However, particularly in digital and highly innovative industries, revenue from sales often proves inadequate as a benchmark for market relevance. In such cases, the aforementioned alternative metrics are used to determine whether domestic activity is at a significant level. Moreover, a target company is presumed to have significant domestic activities if it holds a market share exceeding 10% in the relevant market in Austria, irrespective of domestic turnover.
In the Facebook/GIPHY case, the Cartel Court stated that the value of digital companies is primarily determined by data, rather than turnover. Data-based significance may be assessed by looking into the aforementioned industry benchmarks, such as the “monthly active users” or the “unique visits of a website”. Additionally, in the Facebook/GIPHY case, not only was the direct use by Austrians via GIPHY's own website and app required to be taken into account, but users of other services, third-party websites, and apps that integrate GIPHY by using application programming interfaces – such as Meta, Signal, or Snapchat – were also relevant. In line with this, GIPHY was found to have significant domestic activity because more than 0.5 to 1 million Austrian (indirect) users sent at least one GIPHY GIF in May 2020 alone.
The transaction value thresholds were also triggered by the globally attention-grabbing Facebook/WhatsApp transaction, which was then reviewed by the European Commission (“EC”) following a referral request under Article 4(5) of the EU Merger Regulation, enabling merging parties to request that a matter be referred to the EC.
In light of this, one might question the extent to which the Austrian authorities are equipped to assess such transactions, which often have global significance. Nonetheless, the Official Parties routinely request the imposition of fines by the Cartel Court in the case of an alleged infringement for implementing such transactions prior to receiving Austrian merger clearance, even where the infringement may have been inadvertent. This was further illustrated in the context of Vivendi’s acquisition of slightly more than 25% of the shares in Lagardère. Vivendi and Lagardère are both French global media and entertainment groups and the transaction was not notified to the AFCA. On a strict reading of the Austrian merger control provisions, acquisitions of 25% or more of a company's shares or voting rights are deemed to constitute a “merger”, regardless of whether control over the company is attained Vivendi subsequently notified the transaction to the Official Parties retroactively, meaning that the infringement of the standstill obligation endured for only 10 months. Nevertheless, the AFCA lodged a request with the Cartel Court to impose a fine of EUR 120,000 on Vivendi.
Behavioral Remedies in Foreign-to-Foreign Mergers
If a foreign-to-foreign merger is notified in circumstances where it falls below the thresholds for notification to the Official Parties, simple clearance is not always guaranteed, even if it seems that the target company has a limited connection to Austria. Particularly in the technology sector, the Official Parties have recently adopted a rigorous stance. In the Facebook/GIPHY case, clearance was granted only after the imposition of a substantial number of behavioral commitments. Among others, Meta was obliged to ensure non-discriminatory access for its rivals to GIPHY's GIF library for five years. Further, within seven years, the technology company was required to support an alternative GIF provider in building a GIF library.
Another recent example is the acquisition of eBay's global online classifieds business by Adevinta, a Norwegian online classifieds specialist. Since the Official Parties found that eBay and Adevinta (via its online marketplace, Willhaben) are close competitors for Austrian users, the parties agreed to commitments to address the Official Parties’ concerns. These commitments limited, inter alia, eBay's ability to influence Adevinta's market behavior (in particular, that of Willhaben) to the detriment of Austrian users.
While such commitments are frequently offered to either prevent Phase II proceedings, or to resolve them swiftly, it is important to recognize that they may have significant implications for a transaction and the future success of the acquired business. This is especially crucial when the negotiated commitments lack a specific duration. In such cases, it is worth noting that the Cartel Court can only modify or revoke commitments upon application by a company involved in the concentration if the relevant circumstances change. Additionally, behavioral remedies often entail costly monitoring and reporting obligations. Therefore, it is strongly recommended that the parties involved in such negotiations with the Official Parties carefully assess the overall impact of any commitments. This is particularly important as violating commitments agreed to as a condition for merger clearance not only constitutes a violation of the legislation but may also lead to fines being imposed by the Cartel Court.
Further Particularities
Another distinctive aspect of Austrian merger control proceedings is the cooperation between the AFCA and the Federal Ministry of Labour and Economy (“FMLE”), which oversees investment control procedures. The AFCA is obliged to forward all merger notifications to the FMLE to enable it to verify whether the transaction might also be subject to foreign investment control review. Even if an internal review by the merging parties has determined that the requirements for an investment control review are not met, the FMLE may still contact the merging parties based on the merger notification, or even take steps ex officio to initiate proceedings.
In terms of the competitive assessment of mergers, Austria stands out for its notable emphasis on sustainability. The Cartel Court may (in exceptional circumstances) approve a transaction that would otherwise lead to a significant reduction in competition, provided that the macroeconomic benefits of the transaction significantly outweigh its negative effects. Relevant factors forming part of this assessment may include economic growth, innovation, full employment, overall welfare enhancement and, consequently, sustainability aspects. Given that government-set sustainability objectives place substantial pressure on global companies to invest in a green economy and develop sustainable business models, the AFCA appears to be increasingly open to considering green efficiencies in its merger assessments.
Summary and Conclusion
Given the unpredictable nature of Austrian merger proceedings, (foreign) companies, especially those active in core sectors such as technology and pharmaceuticals, should be well-prepared when undertaking merger notification analysis. In certain cases, it may even be advisable to contact the competition authorities for pre-notification discussions, even if, at first glance, no merger control thresholds are met.
During the merger review process with the Austrian authorities, it is crucial to recognize that behavioral commitments negotiated in Phase I or Phase II may have a significant impact on the transaction, particularly if commitments apply without a defined duration. Companies need to have a clear understanding of how these constraints will affect their business in the long term.
