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- Social and Economic Policy - Global Policy Forum In a First, EU Court Overturns
Commission's Antitrust Decision
By Paul Hofheinz and Brandon Mitchener, with Paulo Prada
Dow Jones & Company, Inc.
June 7, 2002The European Commission was wrong to stop a British company from acquiring a United Kingdom rival in 1999, an EU court said.
The decision marks the first time a European court has overturned a commission decision to block a deal -- and has the potential to rein in the executive body's considerable power over mergers and acquisitions. It also comes two days after Europe's highest court ruled that governments may not be able to protect takeover candidates from foreign companies, indicating that EU takeover policies are ripe for an overhaul.
The European Court of First Instance said Thursday that the commission failed to prove that consumers would have been harmed if vacation tour operator Airtours PLC, now known as MyTravel Group PLC, had been allowed to buy First Choice Holidays PLC.
The court has four other challenges to commission decisions on its docket, including General Electric Co.'s appeal of the rejection of its bid to buy Honeywell Inc. A GE spokesman declined to comment on the ruling or its own case. But people familiar with GE's appeal said it makes arguments similar to those raised in the Airtours case, including charges that the commission mishandled evidence and failed to prove that a GE-Honeywell tie-up would distort competition. A commission spokeswoman said she couldn't comment on pending appeals.
In Thursday's ruling, the Luxembourg-based court didn't question the legal principle used to stop the 852 million pounds ($1.24 billion or 1.3 billion euros) Airtours-First Choice deal. The principle, known in Europe as "collective dominance" and in the U.S. as "coordinated effects," holds that companies will act like monopolies -- with an adverse effect on competition -- when two or more of them start to dominate a market.
But the court said the commission failed to prove that an Airtours-First Choice combination would create a position of collective dominance in the U.K. travel market. Lawyers said the ruling was a setback for the commission's activist antitrust department because the ruling set high, and specific, standards for proving a case. "This is devastating for the commission," said Alec Burnside, a lawyer at Linklaters & Alliance in Brussels who has represented companies before the antitrust department. "Every decision is potentially vulnerable because of this."
EU Competition Commissioner Mario Monti played down the impact of the ruling, stressing that the collective-dominance theory appeared to have been upheld. " This doctrine is entirely consistent with that of other jurisdictions in Europe and abroad, including the United States," he said. Mr. Monti noted that the commission has prohibited just 18 mergers out of more than 2,000 it has reviewed since 1990. Of those 18, only half were appealed, and of those, one appeal was withdrawn, three were rejected and only one was upheld -- the Airtours appeal. (Four cases are still pending).
In 1999, the commission blocked the MyTravel/First Choice deal on the grounds that it would have left the U.K. tour-travel market with just three big players instead of four. The three survivors would have controlled 79% of the market, and the commission said the trio could have used that position of collective dominance to raise prices and put the squeeze on consumers.
The Court of First Instance said the commission had to prove three things to block a deal under the collective-dominance theory: that a combined entity would be able to set prices and collude with other companies in their sector; that one or more members of the dominant group could actually discourage another member from breaking ranks on prices; and that the dominant companies would be able to shut out smaller rivals. The court said the commission failed to prove its case as the result of an analysis that was "vitiated by errors."
"The court is saying . . . you have to be rigorous and you have to be economically sound in your analysis," said Trevor Soames, an attorney at Howrey Simon Arnold & White in Brussels.
In a nod to critics on Tuesday, Mr. Monti said in a speech that the commission would for the first time publish its guidelines on collective dominance and other criteria used to evaluate deals before the end of the year. "We decided it would be silly to come up with guidelines before we had the court ruling," a spokeswoman for Mr. Monti said Thursday. She said the guidelines would take into account the court ruling.
Meanwhile, MyTravel said it had no immediate plans to appeal its bid to buy First Choice. The commission has two months to decide whether to appeal the ruling to the European Court of Justice
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