Does the sale of VIESSMANN’s air conditioning division fall under investment control?
The AWV lists the sectors in the form of case groups that may give rise to a reporting obligation and — until clearance — a ban on enforcement — for foreign investors. It cannot be seen that Viessmann’s air conditioning division necessarily falls under one of the case groups. However, even if there is no reporting obligation, the Federal Ministry of Economics and Climate Protection (BMWK) has a right of inspection if a foreign investor holds more than 25% of the voting rights in a German company, as in the present case.
Even without the existence of a reporting obligation, it may therefore be advisable for companies to voluntarily report an acquisition to the BMWK and to apply for a clearance certificate. Any concerns of the BMWK with regard to public order and safety can thus be eliminated in advance and legal certainty can be increased, as subsequent intervention is avoided. Subject to earlier knowledge, the BMWK can still initiate a review procedure up to five years after signing.
In the present case, there are no foreseeable significant concerns with regard to public policy and public security, even though revenues from Viessmann’s business are likely to migrate predominantly to Carrier in the USA in the future. In the view of the BMWK, more important should be the preservation of value creation in Germany, including the preservation of jobs and the pre-supply security of Germany and the EU with heat pumps.
With regard to merger control, the parties must observe any notification obligations with the antitrust authorities of those countries in which the respective take-up thresholds are exceeded. These vary from country to country and are linked to the parties’ sales strength or market shares. Exceeding the thresholds may result in notification obligations and enforcement prohibitions in the countries concerned. Violations (so-called gun jumping) can result in serious risks.
The sales of Carrier and Viessmann’s air-conditioning division suggest that in the EU, the European Commission, rather than the individual member states, is likely to be responsible for reviewing the proposed merger, so that the transaction would have to be notified centrally there. Any merger control obligations must also be observed outside the EU, including in the USA, where both parties are also active.
As a rule, merger control is approached early on in the planning of M&A or PE transactions in parallel coordination with investment control and begins with a cross-border review of notification/notification requirements. These can coexist. It therefore makes sense to engage law firms with a corresponding reach for transactions with an international dimension. In particular, it is a considerable relief if the information required by the companies involved can be retrieved in bundled form and the procedures are coordinated among themselves. This avoids contradictions in the presentation and unnecessary workload.
In the present case, there are also no foreseeable serious concerns with regard to merger control from a substantive point of view. In contrast to investment control, the standard of review here is the effect of a transaction on competition in the respective product and geographic markets. Competition in the relevant market for sales of air-conditioning products, especially heat pumps, is also likely to be shaped by the legal situation, particularly in Germany. Recent developments in the energy sector are expected to result in a significant increase in demand for heat pumps in particular, which in turn will lead to investment in the sector on the part of suppliers. This trend is already taking place. Already today, both Asian and EU suppliers are increasingly entering the German market. Fierce competition is taking place here, which should be able to cope with the Viessmann/Carrier consolidation without having to fear significant impediments to competition.
There is currently a global trend of increasing regulatory requirements to protect competition. In the digital economy in particular, massive tightening has been observed for quite a few years now. An increasing EU concern related to distortions of competition in the internal market caused by actors having access to third-country subsidies. In order to protect the internal market, the EU has adopted the Foreign Subsidies Regulation (FSR), which regulates a number of new powers for the EU Commission. These do not just sit alongside existing state aid law. Under the FSR, for larger transactions above certain turnover thresholds or depending on the amount of financial third party contributions received, further reporting requirements may also be added in the future in addition to investment control and merger control. Critics fear overregulation here and criticize considerable legal uncertainties in the approaching application practice. The EU implementing regulation on FSR is still in the voting process.
Dr. Michaela Westrup
Dr. Michaela Westrup is a partner and lead counsel in Reed Smith’s German antitrust practice. She advises a wide range of international companies on EU and German antitrust matters, including some of the world’s largest digital platforms and industry leaders, in antitrust investigations, disputes, compliance and distribution matters, and antitrust and abuse proceedings.