Schneider/Legrand Overturned
25 October 2002
The Court of First Instance has overturned the European Commission's decision prohibiting the merger between French electrical goods manufacturers Schneider Electric and Legrand. Sources say the decision is characterised by thoroughness, despite being made under the 'expedited procedure'.
Once again, the Court has shown itself willing to revisit the facts of a case.
In the ruling, released on October 22, the Court criticised both the case team's economic analysis and its treatment of the parties' rights of defence.
This is the second time a Commission decision on a merger has been overturned; the first was in Airtours, handed down in August. After Airtours, Mario Monti issued a statement reminding everyone he had inherited the decision from his predecessor; Schneider/Legrand, however, was decided during his incumbancy.
The Commission is believed to be stunned by the Court's decision. Says a source: "It expected to lose one appeal this week -- but it didn't expect it to be this one."
With a third reversal likely on Friday (in Tetrapak), the decision has unleashed a wave of speculation about how the Commission will respond. All the cases under appeal emanated from different heads of unit within the Merger Task Force.
"I hope DG Comp rises to the challenge," says a Brussels lawyer "and doesn't respond by retreating into its shell." The decision made front page news in the Financial Times and International Herald Tribune. "This is pretty serious," says DG Comp's former spokesman, Michael Tscherny, now working at Gplus.
Of the three appeals underway, Schneider's has been followed the least closely within the Brussels competition community, chiefly perhaps because the proceedings have been in French.
The Commission could, in fact, meet the Court's criticisms swiftly, if it wanted to sources say. Changes to internal procedure do not require amendments of the law -- only changes to the test or timetable require that. Furthermore, the Commission is in the middle, as it happens, of a top-to-bottom review of its merger control process.
In September Mario Monti trailed various steps that would meet some of the Court's criticisms; for example, he proposed the appointment of a 'chief economist' to DG Comp who might have a power of veto, and 'shadow' panels to scrutinise the work of case teams and keep ambitious case handlers in check. Monti has also given thought to holding a mini-hearing early in Phase Two. Full details of these measures have yet to be worked out.
"I think what the Court is saying is that we didn't spell out the reasons clearly enough," says Amelia Torres, spokesperson for Monti. But doubts remain as to whether internal changes can ever go far enough, and many think that the EC is now destined to abandon the administrative procedure.
The only question for them is: when?
The EU system continues to compare badly to that of the US in the minds of those who have experienced both. "If you've ever done a matter in both Brussels and Washington, the Washington part feels completely different," says a source.
Crucial to the US system is the threat of immediate litigation if the agency reaches a negative conclusion. But abandoning the administrative procedure would be a big step for the EU; if competition law were to be removed from the Commission's exclusive control, it would surely have to move 'as a piece' -- that is, Article 81 and 82 investigations included. "I don't know if the Commission is ready to take that step yet," comments a Brussels practitioner.
Therefore the Commission is likely to press ahead with internal changes designed to prevent excesses by the middle management tier, who, critics say, see 'big' cases as a way to advance their own careers.
Others point out that very few cases per year have led to problems. "We are talking at most about a handful of Phase Twos per year," says a Brussels source.
Says Rachel Brandenburger of Freshfields Bruckhaus Deringer: "These decisions present challenges for the Commission. And the current review of the Merger Regulation provides a good opportunity for tackling them."
Schneider Electric has been represented in its appeal by a team from Allen & Overy in Brussels. Competition partners Jacques Steenbergen and Francis Herbert from Brussels led the work, aided by associate Marc Pittie of the Paris office.
The company also submitted economics briefings prepared by Professor Len Waverman from the University of Toronto and Ciara McSorley of NERA in London. A press release for NERA says that Waverman and McSorley's work on the effects of the merger outside France had played a key role in the Court's decision to overturn the prohibition. "It shows our strength in depth" says Mark Williams, now co-head of NERA in Europe. McSorley was the sole economist with NERA in London who didn't depart earlier this year to join a rival firm.
Allen & Overy worked on the competition aspects only of the original deal. The Parisian firm Darrois Villey Maillot Brochier gave Schneider corporate advice. Since then Darrois Villey has decided to set up its own competition department.
A team from Bredin Prat represented Legrand in the appeal. Competition partners Robert Saint-Esteban, Hugues Calvet in Paris and associates Chantal Momege (Brussels), Margali Russelot and Francois de la Ferre also worked on the matter.
