New Blow To EU Antitrust Chief

In the third defeat this year -- and second in a week -- for the European Commission, a European court ruled that regulators erred in blocking Swiss-based Tetra Laval Group's attempt to create a drinks-packaging giant last year by buying French bottling company Sidel SA for $1.66 billion.

The Luxembourg-based Court of First Instance said the Commission provided insufficient evidence and overestimated the merger's anticompetitive effects.

On Tuesday, the same court annulled the Commission's decision to block a merger between two French electrical equipment makers. It also overturned the rejection in June of a merger of two British travel companies.

Each time, the court chastised the Commission's merger task force for poor casework.

Acknowledging a 'tough week,' EU competition commissioner Mario Monti promised to take the court rulings into account when presenting long-debated reform proposals, due in December.

'I am determined to do my utmost to ensure that this does not happen again,' he said. 'Even though we started our fundamental reform of merger control well before these judgments, we will fully draw all the necessary judgments from them.'

He added he was 'happy to note' that the court upheld in principle the Commission's use of an economic theory that has drawn criticism from across the Atlantic, especially in relation to last year's ill-fated GE-Honeywell deal.

Monti's investigators found Tetra, the world's largest maker of carton packaging, would 'leverage' its strength in that market by taking over Sidel's plastic bottles business.

The combined company could then offer deals to customers for all their needs at the expense of smaller competitors, they said.

The Commission used similar reasoning to block the $43 billion GE-Honeywell deal last year.

Although GE says it's no longer interested in acquiring Honeywell, it is appealing in hopes of preventing that leveraging theory from being used to shoot down future mergers.

But lawyers said its chances of winning that kind of ruling looked weaker after Friday's decision.

'They [the court don't say leveraging is not an appropriate theory,' just that the Commission did not prove its arguments in this case, said Catriona Hatton, managing partner of the Brussels office of Hogan and Hartson.

Microsoft's three-year antitrust battle in Brussels also involves charges it is leveraging its dominant Windows operating system into emerging markets for media and server software.

Microsoft opponents cheered Friday's ruling.

'The court has actually strengthened [the Commission's hand vis-a-vis proven lawbreakers such as Microsoft,' said Ed Black, president of the Computer and Communications Industry Association. 'In the Microsoft case, there is abundant evidence of abuse.'

Microsoft, based in Redmond, Wash., declined to comment.

Asked at a news conference about the impact on other cases, Monti said each would be decided on its own merits.

He also rejected suggestions that the EU should move toward a U.S.-style system, under which regulators have to go to court to block a deal. In Europe, the Commission can block a deal on its own.

'Just because we're going through a difficult patch, we shouldn't reject the model as such,' he said.

However, he suggested changes that would nudge the system more toward the U.S.-approach, such as making the new fast-track court reviews even faster, and allowing companies to ask to 'stop the clock' in difficult cases to allow more time for settlement.

The EU currently must make a decision in five months, while the U.S. system has no deadline.

Monti also promised more internal 'checks and balances' as the 'main inspiring theme of the reform,' including instituting a 'devil's advocate' review of all difficult cases.

Antitrust lawyers in Brussels said the moves were headed in the right direction at least.

'It's helpful, definitely, but I'm not sure whether it goes far enough,' because the review would be 'still purely internal,' said Geert Goeteyn of Howrey Simon Arnold and White's Brussels office.

Hatton said she expected more caution from Monti's office in future merger reviews.

'When they have three [defeats in a row ... it really needs a total rethink of how the merger task force operates,' she said.

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