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The need for speed in mergers is no reason to ignore rights of defence

The need for speed in mergers is no reason to ignore rights of defence

The need for speed in mergers is no reason to ignore rights of defence

07.02.2019 NL law

On 16 January 2019, the European Court of Justice clarified the procedural guarantees the European Commission needs to provide to merging parties during merger reviews. According to the Court of Justice, the General Court (GC) had rightly annulled the Commission's decision to prohibit the merger of UPS and TNT. UPS's right of defence had been infringed because the Commission had failed to share the final version of the econometric model with UPS before adopting its prohibition decision.

Even though there is a need for speed in merger control proceedings, companies should still be given sufficient opportunity to provide their views on the accuracy and relevance of all the factors on which the Commission intends to base its decision.

In 2013, the Commission concluded that the merger would have led to a significant impediment to effective competition in 15 Member States on the market for the international express delivery of small parcels. UPS subsequently withdrew its cash offer for TNT and, in 2016, TNT was acquired by FedEx, a competitor of UPS.

In 2017, the GC set aside the Commission's prohibition decision on the ground that the rights of defence of UPS had been infringed [see our April 2017 Newsletter]. Specifically, the econometric model relied on by the Commission differed materially from the one disclosed to the parties in the statement of objections. The GC held that this error was sufficient to annul the prohibition decision because, absent the error, there was at least a slight chance that the parties would have been better able to defend themselves. Notably, the GC did not find it necessary to consider whether the outcome of the Commission's review would have been different but for the procedural error.

The Court of Justice upheld the GC's judgment and confirmed that the rights of the defence require parties to be put in a position in which they can effectively make known their views on the accuracy and relevance of all the factors on which the Commission intends to base its decision. The Court of Justice emphasized that while econometric models are quantitative tools appropriate for the purpose of carrying out prospective merger control analysis, the methodological basis underpinning those models must be as objective as possible.

The judgment, which is consistent with EU courts' greater appetite to set aside Commission decisions on procedural (as opposed to substantive) grounds, is likely to only have a modest effect on the Commission's conduct in merger reviews. This is because in trying to strike a balance between administrative expediency and the rights of defence, the judgment only requires that "material" changes be notified to the merging parties. According to AG Kokott's opinion, undertakings concerned should not expect, in terms of content, more than a brief and to-the-point description of the econometric model used by the Commission.

Finally, it remains to be seen how the judgment will affect the ongoing damages claims brought against the Commission by UPS and Irish aviation company ASL, which had agreed to buy TNT Airways subject to the UPS/TNT transaction. Both parties are seeking compensation for losses incurred in connection with the prohibition decision.

 

This article was published in the Competition Law Newsletter of February 2019. Other articles in this newsletter:

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