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EC suffers historic setback
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| Copyright: | The Deal, L.L.C. All rights reserved | | Source: | TheDeal.com | | Wordcount: | 695 |
The European Union's antitrust regulator lost its first-ever damage suit when a court ruled Wednesday, July 11, that France's Schneider Electric SA must be partially compensated for losses sustained as a result of the European Commission's illegal prohibition of a deal in 2001. The case was the first damages suit filed against the European Commission before the Court of First Instance in Luxembourg as a result of its antitrust rulings.
"It's a landmark," said Antoine Winckler, a Brussels-based partner with Cleary Gottlieb Steen & Hamilton LLP who represented Schneider along with associate Eric Paroche. Rounding out the legal team were Bredin Prat's Marc Pittie, Mathilde Damon and Karin-Amelie Jouvensal. "It adds to the pressure already there" on the Commission to justify merger decisions, Winckler added.
The ruling stems from the Commission's 2001 veto, reversed on appeal, of Schneider's €7.1 billion ($9.8 billion) acquisition of Legrand Holding SA. U.K. travel operator MyTravel Group plc, formerly called Airtours plc, seeks €517.9 million in damages stemming from the EC's veto, also overturned, of its 1999 bid for First Choice Holidays plc.
While acknowledging the significance of the ruling, some observers cautioned that the potential impact should not be exaggerated. "The Commission should take comfort in this ruling," said José Rivas, a partner at law firm McDermott Will & Emery LLP who heads the firm's Brussels office and co-heads the firm's European competition group.
"The Court of First Instance has allowed the Commission wide discretion in its economic analysis of antitrust cases, and only if there is a fundamental error such as a violation of procedural rights can such claims be brought," he added.
By the time the CFI overturned the Commission on Schneider-Legrand, Schneider had already agreed to sell Legrand instead to New York buyout firm Kohlberg Kravis Roberts & Co. and French investment firm Wendel Investissement for a much lower price of €3.6 billion.
Schneider seeks €1.7 billion in compensation for losses suffered as a result of the Commission's actions relating to Legrand, but on Wednesday the court accepted only some of Schneider's arguments relating to defects in the merger-control procedure.
The court went on to argue that the purpose of defining the threshold at which the European Community can incur liability is to preserve the competition regulator's latitude and discretion.
Schneider now has three months to inform the court of the losses it incurred, though in a statement after the ruling Schneider maintains the court has ordered the Commission to compensate it for two-thirds of its losses. In addition, an expert will assess losses resulting from the reduction in the final sales price of Legrand, the court said.
Winckler said it was too early to estimate the amount Schneider can expect to receive. Speaking to journalists in Brussels, Commission spokesman Jonathan Todd said regulators would study the ruling and decide within two months whether to appeal the ruling on points of law.
He emphasized the Commission had reformed its merger-vetting procedures in response to the trio of court defeats in 2002; the third involved the court overturning the regulator's prohibition of Tetra Laval International SA's takeover of Sidel SA. However, the deadline for Tetra to file its own suit for damages has long passed.
In Wednesday's ruling, the court criticized the Commission for not giving Schneider a right to be heard before adopting the prohibition decision. However, it rejected Schneider's claim that there were other defects in the merger control procedure.
"This is not a decision that will open the floodgates because the threshold for damages is high," said Catriona Hatton, managing partner of Hogan & Hartson LLP's Brussels office and co-head of its European antitrust practice.
"The Commission is not liable just because it gets a merger decision wrong but only where the Commission has engaged in unlawful conduct" defined by the court as a "grave and manifest" disregard of the limits of the power of assessment, she added.
Among other things, the CFI found fault with the Commission for adding an objection to the merger in its final decision that had not been identified in the original so-called statement of objections.
"The Commission changed the goalposts during the process," said Cleary Gottlieb's Winckler.
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