14 January 2016

German Minister of Economics and Energy to approve merger of EDEKA and Tengelmann

On 12 January 2016, the German Minister of Economics and Technology (Minister of Economics), Sigmar Gabriel, announced his intention to conditionally approve the proposed merger of retail chains EDEKA and Tengelmann by way of ministerial approval. The ministerial approval is a legal instrument in German competition law which is rarely used.

EDEKA seeks to acquire its deficient and smaller competitor, Tengelmann, which operates approximately 450 affiliates and employs approximately 16,000 people in Germany. The German Federal Cartel Office (the FCO) prohibited the proposed merger in April 2015 due to competition concerns. However, following the FCO’s prohibition decision, EDEKA applied for ministerial approval from the Minister of Economics who, as the FCO’s supervising authority, is able to overrule the FCO’s decision. The Minister of Economics’ final decision is eagerly awaited and will be highly controversial as, in August 2015 the German Monopolies Commission, an independent advisory body to the German Minister of Economics, advised the prohibition of the proposed merger as, according to the advisory boards assessment, competition concerns cannot be outweighed by overriding public interests.

By assessing the case, the Minister of Economics acts as a competition authority and the formal proceedings are similar to those at the FCO. Interested third parties are invited to submit their opinions. However, the Minister of Economics’ scope of assessment is broader than the FCO’s, which only assesses whether there are impediments to effective competition. The Minister of Economics takes into account whether the restraints of competition by the proposed merger are either outweighed by advantages to the economy as a whole following from the concentration, or whether the concentration is justified by an overriding public interest. The preservation of jobs can constitute an overriding public interest. Nevertheless, the ministerial approval is not subject to the sole discretion of the Minister of Economics, as certain material and formal conditions which are laid down in the German Act against Restraints of Competition must be satisfied.

In its announcement of 12 January 2016, the Minister of Economics presented a number of conditions which the parties have to fulfil before he will grant his ministerial approval:

  • the parties have to keep at least 97% of the currently 16,000 employees and are obliged to offer them secure labour contracts;
  • the parties are not allowed to terminate labour contracts concerning former Tengelmann affiliates for at least 24 months;
  • for the next 5 years, the retail chains are only allowed to sell any affiliates to independent retailers with the permission of the responsible labour union ver.di; even if ver.di grants its approval, the retailers have to guarantee that the purchaser does not dismiss employees for at least 24 months after the sale;
  • the merged entity has to enter into legally binding labour agreements with the responsible labour union in the regions of Munich/Upper Bavaria, Berlin, and North Rhine-Westphalia, which are the regions in which the proposed merger raises the most serious competition concerns; and
  • EDEKA is not allowed to close some meat factories as it initially intended.  In contrast, EDEKA has to ensure the meat factory will continue to operate for at least 3 years and within that period the parties have to take measures to economically rehabilitate the factories to either keep them afterwards or to sell them to a third party which will then further continue to operate them.

EDEKA and Tengelmann have to decide whether to accept these conditions by 26 January 2016. The Minister of Economics will only grant its final ministerial approval after the conditions have been fulfilled. Prior to that the parties are not allowed to complete the merger.

Moreover, the ministerial approval can be appealed in court at the Higher Regional Court of Düsseldorf by both the undertakings concerned as well as by third parties affected by the merger. It is expected that at least one of the parties' competitors is considering to appeal against the final decision if the approval will be granted.

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