Two failed mergers – a trend or a coincidence?

As with everything else, the German Federal Cartel Office´s newsfeed tends to be quieter than usual during the summer months. This makes two new decisions published by the authority in quick succession even more eye-catching. One of them concerns hospitals, the other one the crash test dummy industry. While the cases concern different industries, I was curious whether they have more in common than one might initially think.

Besides the timing of their publication in the newsfeed, there is something else they have in common: both cases went into phase 2, which is still rare in Germany. For example, while the German Federal Cartel Office (FCO) handled 805 merger filings in 2023, only 7 of them were referred to phase 2.

The hospital sector under review – again…

It´s no news that the competition authorities are currently keeping a close eye on the pharma and healthcare sector (which we already blogged about here and here). However, prohibitions in the hospital sector are rare. Between 2003 and 2023 the FCO reviewed 383 hospital mergers, of which 330 were cleared and 7 prohibited. The remaining ones were either withdrawn (and sometimes filed again later) or there was no filing obligation.

The case at hand deals with the envisaged merger between Heidelberg University Hospital and University Hospital Mannheim. In the press statement regarding the decision, the FCO stated that it fears significant negative effects on competition. It found that Heidelberg University Hospital already has a dominant position in the Heidelberg hospital market and – since the two hospitals are only 20 km apart – would further strengthen and extend its position in the Mannheim and Heppenheim region (for our international readers: these are all mid-size towns in southwestern Germany). Both hospitals are considered clear market leaders in the general market for acute inpatient hospital services as well as for acute inpatient services for children and adolescents. Furthermore, according to the FCO, both parties as university hospitals have a strong regional market position for cutting-edge medicine, however, the FCO also recognized that drawing a clear distinction between cutting-edge and “standard” medicine remains difficult. The parties´ attempt to claim efficiency gains to justify the merger was rejected by the FCO, as they would not offset or substantially mitigate the negative effects on competition. Hence, according to the FCO, the merger would be to the disadvantage of patients and was therefore prohibited.

Although the antitrust-related arguments are pretty standard, the case still stands out because of its political component. The merger was backed by the federal state Baden-Württemberg, which wanted to support local health care activities. Unsurprisingly, the state is not happy about the FCO´s decision and is therefore – according to the media – working on an application for a ministerial permission (a special instrument in German merger control, whereby the Minister of Economic Affairs can approve a merger for special reasons). Ministerial permissions are very rare and the concept itself has supporters and opponents (read more about it here). The few ministerial permissions in German merger control history were often subject of discussions and even court proceedings. So, it remains to be seen whether this case will add to that.

Not passed the crash test: US companies withdraw merger filing

The second case concerned two US companies active in the crash test dummy industry. Ansys Inc. wanted to acquire a minority shareholding of just under 35 percent in Safe Parent Inc. Ansys is a major provider of engineering simulation software for crash tests in the automotive industry. Safe Parent is a provider in the field of physical and virtual crash test dummies. The merger filing was withdrawn by the parties when the FCO raised competition concerns.

Just as in the hospital case, the FCO underwent significant investigations by surveying relevant customers and competitors and examining economic analysis and internal strategy documents. In the end, the authority found that since both companies have a dominant position in their respective fields, even the acquisition of a minority shareholding would significantly lessen competition and strengthen the positions of the parties. According to the FCO the products of both parties are essential for crash simulations and the merger would have given the parties the incentive to hinder competition in the markets for crash simulation software with occupant protections and virtual dummies through tying and other foreclosure strategies.

This case stands out for various reasons: First of all, it only concerned the acquisition of a minority shareholding, in many jurisdictions such acquisitions of minority shareholdings are not even notifiable. Furthermore, the case deals with a very niche market and concerns two US and therefore not domestic companies. Last but not least, the case shows that the FCO takes a close look at internal documents, which apparently underlined the FCO’s concerns.  

Difficult times to obtain merger clearance in Germany?

I would definitely not go this far. The publication of the two cases in such quick succession was probably more of a coincidence. However, both cases reflect fundamental trends and principles of German merger control. Hospital mergers can be difficult and are closely scrutinized by the FCO, even if the desire of politicians is clearly to consolidate the hospital landscape in Germany. The case at hand will show whether the ministerial approval is able to solve this conflict. The dummy case shows that the 25% threshold is not merely a formal hurdle to be crossed but is taken very seriously by the FCO and can even present challenges in foreign-to-foreign mergers. This case also highlights the importance of internal documents in the FCO’s assessment, emphasizing the need for continued caution while preparing them.

Many thanks to Tim Rothenpieler for his support with this post.

Photo by Kai Pilger on Unsplash