Commission challenged by ECJ merger ruling

Date: 11/06/1998

By Rory Watson

THE European Commission is entering new legal territory as it comes to terms with a landmark ruling from the European Court of Justice overturning a five-year-old merger approval.

The unexpected set-back is the first time the Luxembourg-based Court has overruled a Commission decision under its merger legislation. It has forced the institution's competition lawyers back to the drawing-board.

The challenge they now face is how to apply the ruling annulling approval of the merger between two German potash companies which has been operational for half a decade.

"We have to restart the clock and look at the facts again. We need to re-examine the merger in the light of the experience of the past few years and then take a decision," explained a Commission spokesman.

Under the timetable laid down in the EU's merger rules, that decision will need to be taken within the next few months. Commission lawyers have already asked the German companies for the latest market data and expect to receive this within weeks.

Once it arrives in Brussels, the clock will start ticking. The Commission will have one month to give a preliminary ruling on the merger and a further four months to deliver a definitive verdict.

At stake is the alliance agreed by the Commission in December 1993 between two German companies: Kali und Salz, a subsidiary of BASF and the largest producer of potash in western Germany, and MdK, the main producer in the former eastern Germany.

The marriage of the country's two leading potash and rock salt producers only went ahead after a series of hunger strikes convinced the Treuhandanstalt, the body set up by the German government after reunification to take over and then privatise former east German companies and property, to intervene and prop up MdK.

In addition, the two partners, who held 98% of the market in Germany, offered certain commitments to avoid the merger giving them an oligopolistic dominant position on the Union market.

These pledges directly affected the French potash group of Société Commerciale des Potasses et de l'Azote (SCPA) and Enterprises Minière et Chimique (EMC). As a result of the conditions attached to the merger, Kali und Salz pulled out of the export cartel it operated with its French partners, forcing them to reorganise their world-wide sales.

The firm also terminated its cooperation with SCPA as a distribution partner on the French market.

The decision was subsequently challenged by the two French companies, which argued that the conditions attached to the merger should be annulled.

In its judgement, the ECJ agreed with the plaintiffs and went even further by not only quashing the specific commitments made by Kali und Salz, but also the merger decision itself.

Charles Price, who successfully represented the two French companies in challenging the Commission's merger decision, maintained this week that the Court's ruling raised fundamental questions.

"What does the Commission do now?" he questioned. "It would seem difficult to approve the merger unconditionally, so the Commission will probably have to refuse it - which would be difficult after five years - or else establish new conditions.

"At the same time, what are the rights of a third party whose situation has been prejudiced by undertakings and conditions attached to a merger which are then overruled by the Court?" he added.

While some lawyers believe that the Commission can get out of this embarrassing conundrum by now approving the merger with no strings attached, others believe that route would contradict its earlier reasoning. "Five years ago, the Commission did not feel able to approve the merger unconditionally. Why should it feel able to do so now?" asked one EU expert on competition policy.

A growing view is that the Commission will try and find a way to let the merger stand, but attach new conditions.

Whatever route it takes, it now knows that its merger decisions can be overturned.