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EU court deals compensation blow to Commission

LUXEMBOURG - A court ordered the European Commission to partially compensate France’s Schneider Electric in a dispute over a blocked takeover, the first time the EU regulator has been told to pay out in such a case.

In its ruling on Wednesday, the European Union court said independent experts would set the level of compensation that the Commission would have to pay for illegally barring Schneider’s 6.7 billion euro ($9.22 billion) bid for rival Legrand in 2001.

Schneider had sought 1.6 billion euros in compensation.

‘Schneider must be partially compensated for losses sustained as a result of the illegal prohibition of its merger with Legrand,’ the Court of First Instance said.

After its bid, Schneider became owner of almost all of Legrand to comply with French law. The commission’s move to block the deal was overturned by a court in 2002, but by then Schneider had agreed to re-sell its acquisition at a knock-down price, and decided to go ahead with the sale rather than wait for a revised commission decision.

The failed foray cost Schneider some 2 billion euros, although it benefited from a 500 million euro tax credit.

The Commission, which can appeal against the decision to the European Court of Justice, the EU’s highest court, said it would study the ruling carefully.

The court ruled that the Commission had taken away Schneider’s right of defence because the EU executive never gave the company a chance to answer charges that the deal would ‘buttress’ the positions of Schneider and Legrand.

Buttressing was the term used for mutual support between the two companies that would have given them a dominant market position.

‘(The Commission) deprived Schneider at the time of any possibility of knowing that there was no prospect of obtaining a declaration that the merger was compatible, unless it submitted corrective measures which were capable of reducing or eliminating that ‘buttressing’,’ the court said in a statement.

When it assesses a takeover, the Commission can approve the deal, block it, or demand remedies, such as divestitures, to any competition problems from the companies involved. In this case it simply blocked the deal.

The court said Schneider would be compensated for the costs it incurred in the Commission’s second assessment of the deal after the court had annulled the original decision.

The Commission and the company have three months to agree on that amount and inform the court.

It will also receive two-thirds of the costs relating to the reduction in the price of Legrand which Schneider had to concede to the eventual buyers while they were all awaiting the court ruling that anulled the Commission’s decision.

An independent expert will set this amount, the court said.

Financial groups Wendel and KKR bought Legrand from Schneider.