For a second time, the Court of First Instance skewered the analysis the European Commission used to block a takeover – in this instance Schneider's purchase of rival French electronics maker Legrand. And more embarrassment may follow as the court rules later this week on Tetra Laval's bid for Sidel.
The court issued a damning critique of the Schneider-Legrand decision, saying it overestimated the economic power of the group by simplifying its analysis of the group's international activities. In France, where the Commission had a case to block the deal, it changed the nature of its objections in such a way as to make it virtually impossible for Schneider to propose remedial action.
Taken on its own, the annulment is not life threatening to Mario Monti's mergers hit squad. But combined with its flawed decision on MyTravel's bid for First Choice, the taskforce's credibility is in tatters. A defeat on Tetra Laval would be devastating. To recover credibility, Monti must propose more radical reforms than the ones he has heretofore considered, like the appointment of a chief economist.
Any lasting solution must tackle the absence of checks and balances in the Commission adjudication of mergers. Today, the team within the taskforce that presents objections to a deal also handles the second phase, following the response of interested parties. Critics believe that findings made in the first phase are a fait accompli no matter how strong the defense. The fact that more than four times as many deals have been pulled in the first stage than were ultimately rejected by the Commission suggests as much. Separating the teams won't be enough to rectify Europe's flawed mergers policy. While a separation might tighten up the analysis that the court called `vitiated by errors and omissions,' the process would still be conducted behind closed doors.
Better yet would be for an independent body, perhaps even the Court of First Instance, to handle the final stage of the approval process. This would align the EU's competition policy with other markets. The US Federal Trade Commission and Department of Justice must have their recommendations upheld in court. The UK's Office of Fair Trading refers takeovers where it has concerns to a Competition Commission. Both procedures give companies seeking approval a fair and transparent opportunity to argue their case. Europe should do the same.