UK: Tetra Laval - Sidel - CFI Overturns the European Commission’s Decision Again

The European Commission’s Merger Task Force has suffered another heavy blow today, as its decision to prohibit the acquisition by Tetra Laval of Sidel SA has been annulled by the Court of First Instance. The Court has also overruled a related decision forcing Tetra to divest its acquisition. The ruling comes less than five months after the Court’s annulment of the Commission’s decision in respect of the Airtours acquisition of First Choice, and only three days after the annulment of the Commission’s decision in respect of Schneider’s completed acquisition in Legrand.

The Commission Decision

Tetra owns the Tetra Pak packaging business and Sidel is a leading manufacturer of PET plastic packaging equipment. Tetra launched its bid for the French Company Sidel on 27th March 2001. In accordance with the rules of the French Stock Exchange the bid was unconditional. The transaction was notified to the European Commission on 18th May 2001. The Commission’s decision prohibiting the merger was published on 30th October 2001. The Commission was particularly concerned that the merged entity would have strong positions in neighbouring markets and that the combination of these would be likely to give rise to anti-competitive effects. The Commission found that commitments offered by Tetra would not be sufficient to address its concerns. The Commission subsequently adopted a decision in relation to the divestment by Tetra of its interest in Sidel, ordering a final and permanent separation of the two companies.

Tetra’s appeal was lodged in January 2002 and was heard under the expedited procedure.

The CFI Ruling

The Court’s judgment rejects arguments that the Commission infringed Tetra’s right of access to the file, but accepts Tetra’s substantive arguments in the case. It states that the Commission has committed "manifest errors of assessment" in many elements of its analysis.

The Court considers that the Commission over-estimated the negative horizontal and vertical effects of the merger and erred in relying on these to support its analysis of the creation of a dominant position on the relevant PET markets.

Furthermore, the Court holds that the Commission committed errors in its reasoning in respect of the conglomerate effects of the merger (i.e. the effects on competition arising out of the parties’ activities in neighbouring markets). The Commission had argued that it could not be ruled out that the merger would give rise to anti-competitive effects in future, on the basis of possible leveraging from one market into another, elimination of potential competition and the fact that the merged entity would be able to strengthen its dominant position on the carton and PET markets by raising barriers to entry in those markets and eliminating its competitors.

The Court affirms that, in a prospective analysis of a conglomerate-type merger transaction, where the Commission concludes that a dominant position would in all likelihood be created or strengthened in the relatively near future and would lead to effective competition on the market being significantly impeded, it must prohibit it. It does not however agree with the Commission’s substantive analysis in this case and considers that errors of assessment vitiate the Commission’s arguments in respect of leveraging and elimination of potential competition, and that without these it cannot argue that there is a strengthening of a dominant position.

Accordingly, the Court has upheld Tetra’s arguments alleging lack of horizontal, vertical and conglomerate anti-competitive effects.

Press reports indicate that, following this morning’s ruling, Tetra intends to resubmit its bid for Sidel and is confident that it will win the Commission’s approval.

The Court’s damning judgment makes it almost inevitable that there will be significant reforms in the way merger decisions are made at the European Commission.

© Herbert Smith 2002

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