EU merger control: compensation for losses due to illegal prohibition decision

United Kingdom

The Court of First Instance (CFI) confirmed on 11 July 2007 that Schneider Electric must be compensated by the European Commission for certain losses arising from the European Commission’s illegal prohibition in 2001 of Schneider’s acquisition of Legrand.

The CFI has decided that Schneider should be compensated for:

  • the expenses Schneider incurred in dealing with a resumed EU merger review of the acquisition, following the annulment of the European Commission’s original decision to prohibit the transaction; and
  • the reduction in sale price of Legrand which Schneider had to concede to the purchaser in order to obtain postponement of the sale while Schneider was waiting for the outcome of the resumed merger control procedure.

This is the first time a company has been awarded compensation due to an incorrect EU merger control prohibition and there is at least one other similar case pending in the European Courts.

While this development is specific to the particular circumstances of the Schneider/Legrand deal, it sends a signal to the European Commission that it can be punished for overstepping the limits of its powers of assessment. Over the last five years the Commission has received a number of challenges to its merger control review processes, one of which was the European Court’s annulment of the European Commission’s original Schneider/Legrand prohibition decision. These have emphasised that European Commission EU merger control decisions must be capable of standing up to detailed scrutiny. The CFI in the Schneider case noted that there was “grave and manifest disregard of the limits of their powers” by the European Commission. Parties to transactions requiring EU merger control review may anticipate the European Commission increasing the intensity of its review procedures as a result.

The CFI’s press release on this case gives details of the chronology of the Schneider/Legrand case and is available by clicking here.