German court decision restricts expansive interpretation of the transaction value threshold in merger control

In two rulings on 26 February 2025, the Düsseldorf Higher Regional Court (HRC) limited the Federal Cartel Office's (FCO) expansive interpretation of the transaction value threshold. These decisions, which arose from Adobe's 2018 acquisitions of Magento for USD 1.68 billion and Marketo for USD 4.75 billion, provide important guidance on the notification requirements for high-value acquisitions of targets with limited German revenues.

Legal background

The purely turnover-based filing threshold in Germany (Section 35 (1) ARC) only triggers a filing obligation if:

• the combined worldwide turnover of all parties exceeds EUR 500 million;
• the turnover of one party in Germany exceeds EUR 50 million; and
• the turnover of another party in Germany exceeds EUR 17.5 million.

In 2017, the transaction value threshold of Section 35(1a) ARC was introduced into German merger control law to cover high-value acquisitions of companies with low domestic turnover but significant competitive potential. This threshold triggers a notification requirement only if the conditions of Section 35(1) ARC are not met and if the following five cumulative criteria are fulfilled:

• combined worldwide turnover of all parties exceeds EUR 500 million;
• one party's turnover in Germany exceeds EUR 50 million;
• no other party's turnover in Germany exceeds EUR 17.5 million;
• the transaction value exceeds EUR 400 million; and
• the target is active in Germany to a significant extent.

The last criterion has proved to be critical in recent years in cases where the target company was active in the digital business with only limited turnover in Germany (less than EUR 17.5 million) and notification then depended on the assessment of whether the activity in Germany was significant or not.

Transactions

The HRC's decisions concerned Adobe's 2018 acquisitions of the e-commerce platform Magento and the B2B marketing automation platform Marketo. Both companies had been active in the German market for more than ten years prior. In both cases, the target companies did not meet the relevant domestic turnover thresholds under the purely turnover-based filing threshold in Section 35(1) ARC. Since, however, the transaction values in each of the two transactions exceeded EUR 400 million, the FCO determined that the conditions of the transaction value threshold in Section 35(1a) ARC were met and started a divestiture procedure. After concluding the procedure due to the lack of substantive competition concerns, FCO issued a formal decision ordering Adobe to bear the costs of the divestiture procedure. Adobe challenged the cost decision before the HRC.

Court's rulings

According to the HRC, the FCO lacked jurisdiction to review the transactions and initiate the divestiture procedure. As a result, the HRC overturned the FCO's cost orders. The rulings provide valuable insights into the applicable criteria to establish whether a target company is "active in Germany to a significant extent":

• The wording of the provision is unambiguous in that the target company must currently be active in Germany to a significant extent. It is not sufficient that it will be active in Germany to a significant extent in the future. The FCO is advocating a reform of the provision so that the wording also covers significant activities in Germany in the future.
• In a mature market where the domestic turnover is a reliable indicator to reflect the relevance of the target's market position and competitive potential, the question whether the target company is "active in Germany to a significant extent" can be answered regarding its turnover in Germany: if the target company's turnover in Germany is less than EUR 17.5 million, it is not active in Germany to "a significant extent".
• The transaction value threshold of Section 35(1a) ARC remains relevant for acquisition of target companies active in markets where domestic turnover is not a reliable indicator of the actual competitive relevance of the target company. In particular, this applies to digital companies and innovative startups. Although not decisive in the present cases, the HRC assessed the domestic activities of the target companies in Germany on the basis of their local presence, their number of employees and their customer base in Germany.

Conclusion

The HRC confirmed the limited scope of the transaction value threshold as already set out in its first decision on Section 35(1a) ARC in 2022 (judgment of 23 November 2022 – Kart 11/21 (V), currently under appeal before the German Federal Court of Justice). At present, only the Court's press release is available and once the full reasoning is published, additional guidance on the application of the transaction value threshold may be obtained. This will be the case at least until the Federal Court of Justice issues its decision in the 2022 case currently under appeal. Nevertheless, for acquisitions of companies operating in innovative and dynamic markets, these decisions reinforce the need to carefully assess whether the acquisition falls within the scope of the German notification requirements, particularly regarding the transaction value threshold.

For more information on these rulings and how they could affect your German-based business, contact your CMS client partner or these CMS experts.