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EU Antitrust Watchdogs Overturned

October 22, 2002

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LUXEMBOURG (AP) _ In a ruling expected to speed reform of the way the European Union reviews mergers, the European Court of Justice on Tuesday overturned a controversial decision by antitrust regulators to block a major takeover _ its second such reversal this year.

The court ruled the EU’s executive Commission erred in rejecting French electrical equipment maker Schneider Electric’s $7.7 billion takeover of French rival Legrand in October 2001.

``The Commission’s economic analysis was vitiated by errors and omissions,″ the court said in a scathing assessment of the investigation carried out by EU antitrust chief Mario Monti’s team.

The decision was a major blow to Monti and his commission, which are still smarting from another reversal in June involving two British companies and the blistering criticism over their blocking of last year’s General Electric-Honeywell deal, which is also under appeal.

Lawyers said Tuesday’s ruling showed the court emerging as a powerful check on EU regulators, who have the power to block deals on their own. In the United States, regulators must get a court to agree first.

The two defeats ``endorse what many of us have been saying for the last two or three years,″ said Chris Bright, a partner at Shearman & Sterling in London. ``This is a system that is out of control.″

Monti’s spokeswoman, Amelia Torres, said the ruling will accelerate a review, under way at the Commission, of how antitrust investigations are conducted.

To date that review ``has pointed to weaknesses in decision-making and economic analysis,″ she said.

Changes would be unveiled by year’s end, she said, but cautioned against expectations of ``a major overhaul.″

But the court’s actions already appear to be having an effect.

In June, the European court overturned the decision to block a merger of two British travel companies, First Choice Holidays PLC and Airtours. In a sharply worded ruling, the court chastised the commission for not doing enough homework then as well.

Shortly afterward, Monti reversed course on what was expected to be a rejection of a planned merger between Carnival Corp. and P&O Princess Cruises PLC, clearing it with no conditions at all.

``The real threat of real judicial review is having a huge tonic effect on officials,″ said Alec Burnside, a Brussels-based partner at Linklaters law firm.

The Schneider-Legrand case, and another to be decided Friday, represent the first time mergers have faced legal review under a new EU ``fast track″ procedure.

In the past, appeals dragged on for years, meaning deals were long dead even if the appeal was won. The Airtours verdict, for example, took three years.

However, analysts said Schneider probably won’t try to hold on to Legrand now but would likely focus on smaller deals given the weaker economy.

Schneider has already agreed to sell its 98 percent stake in Legrand to investment firms Kohlberg Kravis Roberts & Co. LP and Wendel Investissement SA for $3.5 billion. The sale agreement calls for Schneider to pay an estimated $180 million breakup fee if it changes its mind.

Monti’s team had examined the effect of the Legrand takeover on the French market, concluding it would create a monopoly there. The court agreed with that analysis, but said the team’s conclusion that the deal would create problems elsewhere in Europe was based on only a cursory investigation.

Officials in Paris criticized the commission’s decision and charged that it was blocking the creation of European companies big enough to compete globally.

Similar complaints were heard in the Tetra Laval case, to be decided Friday, which is potentially more important.

The Commission blocked Tetra Leval’s $1.5 billion merger with Sidel SA, on concerns that Tetra Laval would ``leverage″ its strength in carton packaging into newer, plastic bottles.

Antitrust investigators argued that the more powerful merged company would bundle its products in a bid to persuade customers to source all their needs from a sole supplier at the expense of weaker competitors.

The EU relied on a similar theory to block GE’s takeover of Honeywell and is wielding it in its battle against Microsoft Corp.

GE and Honeywell have appealed Monti’s decision to block that deal, which had been approved in Washington. The EU is still pursuing Microsoft for leveraging its dominant Windows operating system into non-PC devices to dominate newer markets.

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