German FCO Fines Head of Food Giant Personally for Incomplete Merger Filing

On January 15, 2013, the German Federal Cartel Office (FCO) announced that it had imposed a fine of €90,000 on Clemens Tönnies personally for having submitted incomplete information in the merger notification relating to the acquisition of slaughterhouse operator Tummel Group by the Tönnies Group.1 The FCO blocked the merger in November 2011.2 The notification did not contain any information about Clemens Tönnies’ majority share in the zur Mühlen Group, a major sausage manufacturer. The administrative fine proceedings were terminated by settlement, which meant a mandatory reduction of the fine.

The as-yet-unpublished decision sends a clear signal to individuals who are obligated to disclose their controlling interest in a company under the statutory provisions of the German Act against the Restraints of Competition (ARC). Otherwise, there is an exposure to substantial fines. The fine imposed on Clemens Tönnies is the first fine imposed on an individual for a formal breach of merger filing obligations.3 However, the fine seems to be quite light as the FCO could have considered a fine in the millions of euros.

1. The Prohibited Acquisition of Tummel Group in 2011

In March 2011, Tönnies Holding GmbH & Co. KG (Tönnies Holding), as the parent company of Tönnies Group (Tönnies), notified the FCO of the proposed acquisition of a controlling interest in slaughterhouse operator Tummel.

1.1 The Parties to the Proposed Merger

Tönnies, which is controlled by Clemens Tönnies, is Germany’s leading slaughterer of sows. As a highly vertically integrated company, Tönnies is active in the entire value-added chain from the procurement to the processing of sows and the distribution of sow meat. The sow meat is distributed to third-party sausage manufacturers as well as to Tönnies’ affiliate the zur Mühlen Group (Mühlen),4 which is one of Europe’s and Germany’s leading manufacturers of sausages. Mühlen purchases approximately 40% to 50% of its sow meat supplies from Tönnies.5

Tummel is a slaughterhouse operator that is active in the procurement of sows but not in meat processing, and therefore it does not offer sow meat for sale. Tummel offers slaughtering services primarily to Westfleisch, which is Tönnies’ main competitor.6

1.2 Competitive Assessment by the FCO

According to the FCO, the acquisition of a majority share in Tummel would have strengthened Tönnies’ dominant position nationwide in the procurement of cull sows and distribution of sow meat to meat processors in Germany.7 According to the investigations of the FCO, Tönnies holds a market share of more than 40% in these markets,8and as a result, the statutory presumption of market dominance applies (Sec. 19(3) ARC). Tönnies’ position in these markets is enhanced by its control of Mühlen, which represents an important sales channel for the sow meat Tönnies produces and accounts for almost 15% of Tönnies’ total production of sow meat. Mühlen also gives Tönnies insight into the prices and cost structures of its competitors as Mühlen procures sow meat not only from Tönnies but also from third parties, including competitors of Tönnies.9

According to the FCO’s competitive assessment, Tönnies’ increased slaughterhouse capacity from its planned acquisition of Tummel would have increased its market share in cull-sow procurement to approximately 50%. Furthermore, the market position of Westfleisch, Tönnies’ largest competitor in the domestic market, would have been significantly weakened, because Tönnies’ increased capacity would have included the volume that Tummel currently slaughters for Westfleisch on a contract basis. Since Tummel is not active in the downstream market for the sale of sow meat (it operates slaughterhouses but does not process sows), there were no horizontal overlaps. Nevertheless, the FCO concluded that the merger would also have strengthened Tönnies’ dominant position in the downstream market.10 Post-merger, Tönnies would have obtained access to Tummel’s cutting facilities that are currently leased by Westfleisch and would therefore have been in a position to process and offer sow meat for sale. Tönnies’ sales and distribution channels,11 inter alia through its affiliation with Mühlen (which purchases approximately 40% to 50% of the sow meat it needs from Tönnies12), would have ensured Tönnies an outlet for the increased volume of sow meat.

1.3 Commitments of the Parties Not Accepted by the FCO

Tönnies proposed several commitments to the FCO to satisfy the agency’s concerns. These included prolonging the contract slaughter agreement between Tummel and Westfleisch, offering contract slaughtering facilities to Westfleisch and additional competitors, and suspending its own slaughtering activities at Tummel’s plant.13These commitments, however, were not enough to dispel the competition concerns of the FCO as they would have required ongoing monitoring of the parties’ conduct (Laufende Verhaltenskontrolle), a type of remedy that is prohibited under German antitrust laws (Section 40(3) sentence 2 ARC).

1.4 Concealed Holdings of Clemens Tönnies in the zur Mühlen Group

As is customary, the acquiring company’s counsel, on behalf of the parties to the merger, submitted notification of the proposed merger to the FCO. Although the notification contained information (mainly regarding sales and market share) about the acquiring group and the individual target companies, including their respective affiliates, Clemens Tönnies’ majority share in Mühlen was not mentioned. Thus, Mühlen’s market share and sales were not disclosed either.14

The personal holdings of Clemens Tönnies in Mühlen were initially concealed. In Phase II of the investigation, the FCO requested information from Tönnies Holding, asking it to disclose all corporate relationships and other connections of Tönnies, including its parent companies and subsidiaries or affiliated companies, as well as companies active in the sales of pork or sow meat or in the production of sausages. At first, Tönnies Holding expressly denied the existence of such relationships.15

After investigations into slaughtering and cutting companies as well as producers of sausages had revealed numerous indications suggesting a corporate relationship between Tönnies and Mühlen, Tönnies Holding was questioned again explicitly about existing relationships by means of a further request for information. It was only as a consequence of this second request that Tönnies Holding’s counsel confirmed for the first time via telephone that Clemens Tönnies was a shareholder of Mühlen and that his holding was held in trust.16

More than two months following receipt of the notification by the FCO, Tönnies Holding finally disclosed that Peter zur Mühlen held in trust a majority share in Mühlen on behalf of Clemens Tönnies and was subject to the instructions of the latter. The FCO consequently declared that the notification submitted by Tönnies Holding was incomplete. Ultimately, Tönnies Holding corrected the sales data again, two weeks prior to expiration of the four-month prohibition period.17

2. Legal Assessment of the Administrative Fine Proceeding

Disclosure of Clemens Tönnies’ personal majority share in Mühlen was required. Generally, the notification must contain information about each company involved, including all of its affiliates. According to the so-called corporate fiction statute (Unternehmensfiktion), also known as the Flick Clause18, however, natural persons are also deemed companies if they hold a majority share in a company (Sec. 36(3) ARC). Therefore, the notification must also contain any information about such shareholdings, with the consequence that both sales and market share of companies under the individual’s control have to be taken into account.

It is irrelevant that Clemens Tönnies did not hold the share in Mühlen directly but via a trustee, since pursuant to Sec. 36(2), (3) ARC in conjunction with Sec. 16(4), Sec. 17 German Stock Corporation Act (Aktiengesetz), shares owned by one person but held in trust by another person are also taken into account.19

The concealment of the majority share in Mühlen rendered the application incomplete (Sec. 39(3) ARC). As the information was important to the material assessment of the merger, such breach of duty is a regulatory offense (Sec. 81(2)(3) ARC) that can trigger a fine of up to €100,000. Generally, such fines affect only the companies that are involved in the merger and that are obliged to offer notification of the transaction, i.e., Tönnies Holding and the Tummel target companies. The FCO did not offer further information in its press release, and so it remains unclear how the FCO justified attributing liability for fines to Clemens Tönnies. Tönnies Holding is organized as a limited partnership. In such a case D&O liability generally affects the general partner, in this instance Tönnies Holding-Unternehmensbeteiligung GmbH, whose managing director could generally have been held accountable pursuant to Sec. 9 German Act on Regulatory Offenses (Ordnungswidrigkeitengesetz). As early as 2006, Clemens Tönnies’ name was no longer listed in the commercial register as Tönnies Holding-Unternehmensbeteiligung GmbH managing director,20 and so D&O liability would generally have been excluded.

By way of exception, however, the liability for fines can be attributed to a so-called de facto director or officer. A de facto director or officer is someone who has an outstanding position in the management.21 Due to Clemens Tönnies’ controlling influence on the Tönnies Group companies, the FCO had reason to assume that the behavior of Tönnies and Mühlen, in which Clemens Tönnies held an exclusively personal share, was coordinated. Thus, it is likely that the fine hit Clemens Tönnies in his capacity as a de facto officer.

3. Comment

The course of the events in the Tönnies-Tummel merger control procedure showed that the parties had significantly infringed their notification obligations. Under German merger control law, not every incomplete notification constitutes a regulatory offense subject to fines. Rather, a certain degree of significance is required. Such significance is not present if the missing information is not materially relevant to the substantive assessment of the concentration.22 In the present case, however, the vertical integration with Mühlen was of decisive relevance both for the assessment of market dominance  and for the assumptions made about strengthening effects on the acquiring company in the affected markets. The vertical integration with Mühlen was an important structural factor in the market, securing sales channels through Tummel and providing insight into the pricing and cost structures of competitors.23

In view of the importance of the concealed information for the material assessment of the proposed merger, it is not surprising that the FCO almost completely exhausted the scope of fines available to it – up to €100,000 for the offense. In addition, Tönnies Holding, even when first requested to provide information on the subject, concealed Clemens Tönnies’ majority share in Mühlen and, shortly before the expiration of the four-month prohibition period in Phase II (Sec. 40(2)(2) ARC), submitted relevant sales figures and thus corrected the notification again after it had confirmed the completeness of such notification. Nevertheless, the fine was reduced by 10% because of the company’s cooperation within the scope of the settlement, which prevented the FCO from exhausting the full fine scope.

In the present case, it appeared to be appropriate to hold Clemens Tönnies personally liable for the fine, since he was directly associated with Mühlen and had concealed his personal holdings in it. In this connection, the German Act on Regulatory Offenses contains several provisions24 permitting the attribution of liability of undertakings to natural persons.

However, the FCO has rarely used this power to attribute fines to individuals, and it remains to be seen whether this case signals that personal liability will be imposed more often, or whether the case is sui generis because of the concealment of personal involvement in one of the businesses. It should not be overlooked that the fine imposed on Clemens Tönnies is still quite light. Given the course of the proceedings and the importance of the information for the assessment of the proposed merger, a conclusion that there was an intentional misleading of the antitrust authority is not farfetched (Sec. 39(3)(5) ARC). By not disclosing the secured sales channels of Mühlen, the parties involved in the merger could have managed to avoid the perception of market dominance in the sales market and the strengthening effect for Tönnies in the supply market. Because the information was so critical, the FCO could  have imposed a fine of up to 10% of the total sales of Tönnies Holding and all of its affiliates (Sec. 81(3)(3), (4)(1, 2) ARC). The reason that the FCO refrained from applying a larger fine may be that it wanted to avoid further proceedings in which it would have to prove an intention to deceive.

Endnotes    (↵ returns to text)
  1. Press release of the FCO dated January 15, 2013, cf. http://www.bundeskartellamt.de/wEnglisch/News/press/2013_01_15.php.
  2. Cf. decision of the FCO of November 16, 2011, B2-36/11; press release of the FCO dated November 17, 2011, http://www.bundeskartellamt.de/wEnglisch/News/Archiv/ArchivNews2011/2011_11_17.php. The prohibition decision of the FCO has been appealed by Tönnies and is still pending before the Higher Regional Court (Oberlandesgericht) of Düsseldorf.
  3. So far, there is no published decision of the FCO in which a fine has been levied on an individual for having breached merger filing obligations.
  4. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 2.
  5. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 205.
  6. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 170.
  7. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraphs 160 et. seqq.
  8. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraphs 8, 169, 219.
  9. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraphs 205et. seqq.
  10. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraphs 225, 240 et. seqq.
  11. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 266.
  12. Cf. item 1.1 and footnote 5 above.
  13. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraphs 27, 286 et. seqq.
  14. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 20.
  15. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 20.
  16. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 20.
  17. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 21.
  18. The clause was a reaction to and named after the Flick Affair, the German political scandal of the early 1980s relating to political contributions by the Flick company.
  19. This constellation is to be distinguished from the question of whether the trust triggers a merger control requirement. In this regard, the FCO holds the view that the trust constitutes such a trigger if the trustor assumes the economic risk. In this event, the trust triggers a merger control requirement regardless of whether the trustor has management power or is authorized to give instructions to the trustee.
  20. Clemens Tönnies’ removal as managing director of the company was registered with the commercial register of the local court (Amtsgericht) of Gütersloh under HRB 6736 as of February 1, 2006.
  21. Prevailing opinion, cf. Dannecker/Biermann, in: Immenga/Mestmäcker, GWB, Sec. 81 margin no.  67; however disputed, cf. in this respect Rogall, KK OWiG, Sec. 9 margin no. 49 with further references.
  22. Bechtold, GWB, Sec. 81 margin no. 15; Dannecker/Biermann, in: Immenga/Mestmäcker, GWB, Section 81 margin no. 191.
  23. Cf. decision of the FCO of November 16, 2011, B2-36/11, paragraph 205.
  24. E.g. Section 81 ARC in connection with Sections 9, 14, 30 and 130 German Act on Regulatory Offenses.

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