Even though it is raining while I am writing this, summertime is here, and with it high season for festivals and concerts. Agencies help with organizing and booking artists for these sorts of events. As in any other area, antitrust regulators are tasked with keeping the market open, at least to the extent they have jurisdiction. And this is where this post comes in: The (potential) circumvention of a merger control prohibition.
In 2017, the German Federal Cartel Office (FCO) prohibited the acquisition of a concert and event agency called Four Artists by ticketing system operator CTS Eventim. The FCO found that CTS Eventim was dominant on its own market and that the acquisition of Four Artists – which represented popular German artists but also international mega stars like David Guetta, and was owned by members of famous German band “Fanta 4” – would strengthen CTS Eventim’s dominant position and significantly impede effective competition. Since the deal would have added up to 1 million tickets to the acquirer’s ticketing system, competing ticketing system providers would be weakened.
CTS Eventim took the FCO to court over the prohibition. The underlying questions were interesting: Does the FCO have to show a significant impediment to competition to prohibit a transaction, or is even a slight strengthening of a dominant position sufficient? CTS Eventim lost in two instances. Ultimately, Germany’s top court held in 2021 that (even a small) strengthening of a dominant position leads to a significant impediment to effective competition, and that the prohibition was therefore justified.
Possibilities to circumvent a prohibition
So much for the classic merger control questions of the case. German media now reports (here) that the prohibition was effectively circumvented. In 2019 (a little after the court of first instance upheld the prohibition in December 2018), the manager and more than half of the staff left Four Artists to join a new agency owned by CTS Eventim. While the public prosecutor investigated (not for antitrust reasons), in the end it closed the proceedings. The FCO reportedly took note of the case and is cited as finding it all “irritating”, but claimed it could not act since competition law does not cover this kind of brain drain.
So, can parties easily circumvent a prohibition? No. Generally, the prohibition of a deal leaves few to no loopholes. Even if a company just acquires certain assets or contracts of another company, as long as the turnover generated with these assets reaches the relevant thresholds, the acquisition is subject to merger control.
But getting beyond a prohibition might be easier in service markets that mostly rely on humans (like law firms!). Where an acquirer can simply hire the employees of the target and those employees are able to pull in the customers of their former employer, an acquirer might be able to reach the same effect as with a (prohibited) M&A deal. The acquirer should not get caught, though, to have reached an agreement with the target/seller on employees switching over, as that might well be something competition regulators can act against.
What can regulators do?
From a regulatory perspective, the options to approach these kinds of cases are limited. One could be to allow for broader non-solicitation agreements in the context of M&A deals. Such agreements would prohibit the acquirer from soliciting the target’s staff for a certain period of time. But non-solicitation agreements that cover a situation in which a deal does not go through and that are agreed to the detriment of the acquirer are often somewhat delicate from an antitrust perspective. Regulators providing clear guidance on when and for which durations such agreements might be permissible could help in that regard.
Another but rather indirect solution could be the upcoming broad sector inquiry powers for the FCO (see here and here) which would allow the FCO to impose obligations on companies following a sector inquiry even where these companies have not breached competition law. But this would not directly address hiring the employees of a former target in a prohibited transaction.
Conclusion
The case of CTS Eventim/Four Artists is of course a special one. And it is not for us to decide whether or not there was even a plan to circumvent the FCO’s prohibition. Staff can switch employers for a variety of reasons. However, the case might be a good example for how, under particular circumstances, the goals of a transaction might be reached by other means than via an M&A deal, and at the same time for how the goals of a prohibition might be lost. And it is probably safe to say that such a “circumvention” might not exactly help the reputation of the involved companies at the FCO.
Photo by Michael Rosner-Hyman on Unsplash
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