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.