Antitrust Alert: German Cartel Office Imposes "Gun Jumping" Fine for Merger of Two U.S. Companies

In a highly unusual decision for Germany's Federal Cartel Office (FCO), on December 15, 2008, the agency imposed a fine of €4.5 million against U.S. company Mars, Inc. for violating the bar to closing in Germany pending the completion of the German merger review process. This is the first such fine applied to a transaction between two non-German companies.

In 2007, Mars announced its intention to acquire the global pet food operations of Nutro Products, Inc. After obtaining from U.S. authorities approval to proceed with the transaction, Mars closed the transaction by carving out the German and Austrian distribution business, but without first awaiting local merger control approval. In Germany, prior FCO clearance is mandatory before any transaction that satisfies the German merger reporting thresholds may be completed. Pending the proposed introduction of a second domestic turnover threshold in the German antitrust law, Germany today has a fairly expansive merger reporting system, which requires a significant number of essentially foreign transactions to be notified, as long as the transaction is likely to have certain domestic market effects, which are often deemed to exist by the German agency to the extent that one of the parties meets the domestic sales threshold of €25 million. In this case, Mars argued that it should have been free to complete the acquisition, having entered into a hold-separate agreement with Nutro Products relating to Nutro Product's distribution rights in Germany and Austria. The FCO rejected Mars' argument, asserting that Mars had, by gaining control over the assets and trade names of Nutro Products, actually effectively transferred the target's business to Mars.

Fines for failure to comply with premerger notification requirements are anything but novel in the United States, where the Department of Justice and Federal Trade Commission actively pursue companies for "gun jumping" violations. The FCO's decision against Mars reflects a marked deviation from the agency's historical lenient approach to essentially foreign transactions. Not only is the €4.5 million fine the highest ever imposed by the German agency for closing a transaction before completing the German merger review process, but it represents the first fine in this context calculated on the basis of the agency's 2006 fining guidelines. The fine was reduced to account for Mars' active cooperation with the agency in eliminating residual market effects of the transaction in Germany. Perhaps even more important, this is the first such fine imposed for a foreign-to-foreign transaction, both parties being U.S. businesses. The target did not own any fixed assets in Germany, but generated its German and Austrian sales through independent distributors, which sold product to local pet specialty and farm and feed stores. All of Nutro Products production facilities are located in the United States, the company's largest market.

This Federal Cartel Office decision demonstrates that gun jumping violations will no longer go unnoticed in Germany, even if they involve solely foreign parties. The decision still is subject to appeal to the Higher Regional Court in Düsseldorf.

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