UK: CFI Annuls Commission Decision in Schneider-Legrand

Last Updated: 22 October 2002

The European Court of First Instance has today annulled the Commission’s decisions declaring the acquisition by Schneider Electric SA of Legrand SA incompatible with the Common Market and ordering divestment.

Schneider and Legrand are the two principal French manufacturers of electrical equipment. The Commission was notified of Schneider’s proposed takeover of Legrand on 16th February 2001 and a detailed investigation was opened on 30th March 2001. Schneider announced a public offer for the exchange of shares on 15th January 2001 and offer closed on 25th July 2001.

On 10th October 2001 the Commission announced that Schneider had failed to put forward in good time adequate undertakings to ensure effective competition in France and in a number of other countries, and published a decision prohibiting the merger. The Competition Commissioner, Mario Monti, said at the time that the case highlighted "the absolute need for partners in a merger which involves clear competition concerns to give thought, at a very early stage in the project, to possible remedies and to enter into discussion without delay with the competition authorities". On 30th January 2002 the Commission announced that Schneider would have to divest of all if its shares in Legrand at once, and would not be permitted to keep more than a 5% shareholding. Schneider subsequently entered into an agreement for the sale of Legrand to Wendel and KKR, which recently received merger clearance from the Commission and is understood to include a "buy back" provision that may be invoked by Schneider in the event of annulment of the Commission’s decisions in the Schneider-Legrand case.

Schneider appealed both of the Commission’s decisions under the expedited procedure (which was allowed in consideration for Schneider reducing the number of arguments in its application).

The Court of First Instance accepted Schneider’s contention that the Commission had made a number of errors, omissions and contradictions in its analysis and assessment and that these had the effect of unduly exaggerating the effect of the transaction in national markets outside France. However these were not, of themselves, sufficient to justify annulling the Commission’s decision given the impact of the merger on the French market. Therefore whether the decision should be annulled turned on Schneider’s arguments that it had been deprived of the right to defend itself against the Commission’s objections to the merger. The Court of First Instance accepted that this was the case, principally on the grounds that the Statement of Objections was insufficiently precise, and the arguments set out in the Commission’s decision had a different emphasis from those set out in the Statement of Objections, such that Schneider was unable to propose effective remedies.

The annulment of the Commission decision prohibiting the merger automatically gives rise to the annulment of the second Commission decision requiring Schneider to divest of its interest in Legrand.

The Commission has two months in which to appeal the rulings of the Court of First Instance. It may be that Schneider will wait until the Commission has decided whether to appeal before using the "buy-back" clause in the agreement for the sale of Legrand.

Following so soon after the Commission’s decision in Airtours/First Choice was overturned, the annulment of the Schneider-Laval decision is a significant setback for the Commission. The Court’s ruling in the Tetra Laval-Sidel case, which relates to the Commission’s decision to prohibit another merger that has already been completed, is due out in the course of the next few days.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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