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While Jan. 1, 2002, marked the birth of a united Europe for currency traders, the European Union came of age for lawyers last year on July 3. That was the day the EU killed the merger planned between General Electric and Honeywell International. The decision dramatized the EU’s emergence as a confident, independent player on the world economic stage. GE-Honeywell will go down in history as the first all-American deal scuttled in Brussels after being cleared in Washington, D.C. It’s unlikely to be the last. Europe’s competition regime has reached maturity at the very time that U.S. antitrust regulation has returned to a more pro-business stance. Seizing the moment, EU Competition Commissioner Mario Monti has stepped forward as the world’s top antitrust cop. Having already disappointed GE, America’s largest company by market capitalization, Monti is now taking on the company that, in a good year, ranks second: Microsoft. If Jack Welch were to send a memo to Bill Gates, he might well advise that “Brussels is not D.C.” Welch might also warn Gates to keep an eye out for lawyers from the two firms — Cleary Gottlieb, Steen & Hamilton and Freshfields Bruckhaus Deringer — that combined to persuade the EU to block the GE-Honeywell merger. On the day that Brussels came of age, Cleary Gottlieb and Freshfields Bruckhaus emerged as the clearest winners in the case. They are hardly alone in the field, though. Some 30 American firms have Brussels outposts, and at least a half-dozen have recently expanded their competition law groups in Brussels or London. Newest to the scene is Howrey Simon Arnold & White, which has just announced the opening of its Brussels office. New York’s Shearman & Sterling hung its shingle last summer. “Nearly every international deal requires filing in Brussels,” says Annette Schild, who left Cleary Gottlieb as an associate to become a founding partner of the Shearman office. “Increasingly, clients want lawyers on the ground.” A major lesson from GE’s experience is that lawyers need to study what is unique about Brussels’ institutions and procedures. The starting point should be the one agency in which all EU antitrust power is concentrated: the Directorate-General for Competition, or DG-Comp. The EU has 20 commissioners, who are roughly equivalent to U.S. Cabinet secretaries, except that they also have the power to initiate legislation. Together they make up the “Commission.” Like all the other commissioners, DG-Comp’s Mario Monti, who took office in 1999, was appointed to a five-year term. Unlike the commissioners with other portfolios, such as education or employment, Monti has enforcement powers and does not generally defer to his agency’s national counterparts. Thus, Monti is the one commissioner who keeps CEOs up at night. “It took 200 years for America to put so much power on the federal level,” says Wolfgang Knapp, a partner at Cleary Gottlieb in Brussels. “Here, competition is the weapon at the federal level. Competition law is the motor of European integration.” TOP COPS DG-Comp is astonishingly stable compared to its American counterparts. Its 500 staffers, selected through a tough written exam, join young and rarely leave. There’s been no revolving door, because “Eurocrats” enjoy pay and prestige comparable to that of the private sector in Brussels. When one factors in the advantage of paying the low EU tax rate rather than the high Belgian tax rate, a starting Eurocrat can take home as much pay as a first-year associate in Brussels. Besides, these Eurocrats wield immense power, and even young, midlevel trustbusters have enough muscle to make headlines. In America, antitrust laws are passed by Congress, and mergers can be blocked only by court order. In Europe, the agency serves as investigator and prosecutor and also as legislator and judge. The highest-ranking official at DG-Comp, reporting directly to Monti, is a German, Director-General Alexander Schaub. Since the Commission’s creation in 1958, Germany has wielded considerable antitrust influence, because the country has had the most developed national competition agency. Schaub functions mainly as an administrator and strategic planner, overseeing offices that specialize by sector or function. The most powerful of these are the Merger Task Force, headed by Goetz Drauz, and the Cartels Unit, headed by Georg de Bronett. While cartel regulation in Europe can be forgiving, merger review has legendarily been tough. With GE, it got even tougher. Merging companies can trigger review by EU staffers if they have combined global revenues of 5 billion euros (about $4.5 billion) and EU revenues of 250 million euros each (about $225 million). If, after completion of this initial “Phase I” review, regulators think that the merger may create or strengthen a dominant market position, they undertake a four-month “Phase II” review. During that time, a case team gathers data from the merging parties and from the challengers. The team then issues a draft decision, called a “statement of objections.” (Generally, if a case moves to Phase II, there are objections.) If no compromise can be reached after oral arguments, the EU’s 20 commissioners issue the deciding vote, which almost always backs the recommendation of the competition commissioner. A disappointed company can challenge the Commission’s decision in the EU courts in Luxembourg. But these courts are slow, and an appeal can take up to three years. By that time, a deal will be long dead. Opinions differ on whether the EU courts matter for the development of merger review law. John Davies, the founding partner of Freshfields Bruckhaus’ Brussels office, predicts that appeals arising out of three recent casualties — the GE deal, the Airtours/First Choice Holidays deal of 1999, and the WorldCom/Sprint deal of 2000 — will give the courts a chance either to legitimate the Merger Task Force or to force it to change. “The European merger process is a very young one,” Davies says. “The adolescent will become mature once these cases are heard.” Others, like Jean-Fran�ois Bellis of Van Bael & Bellis, who once clerked in Luxembourg, think that the result is predetermined: “The courts will virtually never side against the Commission on basic philosophy or policy.” THE ROAD TO MONTI The courts’ unquestioned irrelevance to an individual deal’s outcome would seem to place a premium on lobbying. But in Brussels, aggressive lobbying of senior policy makers can backfire. That’s what GE did, and the company’s strategy is widely considered its biggest mistake. It publicly barraged Monti and other top officials with visits and phone calls from dignitaries, like White House chief of staff Andrew Card and CEO Welch himself, to the point where the regulators might have felt obliged to prove their independence. Speaking on condition of anonymity, one senior EU official says flatly that GE’s lobbying was “unprecedented” — and that it “backfired.” “In Brussels,” observes Freshfields Bruckhaus’ Davies, “the fact that you previously held high office can count against you unless you handle yourself very sensitively.” Cleary Gottlieb’s Knapp agrees. Because it is so risky in Brussels to rely on current or former dignitaries to lobby top officials publicly after a crisis develops, he says, the more effective strategy is for a company’s lawyers to develop amicable relationships at an early stage with the trench-level officials who draft legislation and oversee investigations. While lobbyists do better sticking to a behind-the-scenes role in Brussels, rivals to a merging party do not. “In the U.S., complaints by competitors are largely ignored,” says Davies. “The perception there is that if the competitor complains, the deal is good for competition. But because of time limits and staff limits, the Commission relies heavily on competitors to provide a counterpoint to the notifying parties’ description of the market.” This reliance was highly apparent in GE-Honeywell, and Charles James, the U.S. assistant attorney general for antitrust, is still fuming about it. On two occasions last year, James publicly criticized Monti. The problem, James said, is that Monti aims to prevent harm to competitors rather than harm to competition. Among trustbusters, those are fighting words. In response, Monti said in a speech that “not only competitors, but also customers” were worried about the prospect of GE-Honeywell. He argued that James’ dichotomy is false, because if competitors exit an industry, the consumer ultimately suffers. He also tried to dispel any impression the public might have that he is gunning for American companies. Monti noted that GE-Honeywell was the 394th merger involving at least one American party reviewed by the EU since its Merger Regulation took effect in 1989. The EU has blocked only four of them. Both Cleary Gottlieb and Freshfields Bruckhaus well understand the power competitors have in EU merger review. In GE-Honeywell, Cleary Gottlieb, representing United Technologies, combined with Freshfields Bruckhaus, representing Rolls-Royce and Rockwell Collins, to present the arguments that succeeded in killing the merger. Indeed, when any company gets into a sticky mess in Brussels, one or both of these firms are apt to get involved. AMERICAN PLAYERS Of the two firms, it was the American that was present at the birth of Europe’s great political venture toward unity. In 1951, Cleary Gottlieb’s now-deceased D.C. partner George Ball helped Jean Monnet, the French advocate of European unity, draft the competition laws of the EU’s ancestor, the European Coal and Steel Community. Cleary Gottlieb was thus attuned to Europe’s potential before most Europeans were (and certainly before the U.K., which joined the European Economic Community in 1973). Cleary Gottlieb, which opened in Brussels in 1960, was the second American firm in town, after Baker & McKenzie. Cleary Gottlieb partner Knapp, who was born in Germany, attributes the firm’s success to its strategy of recruiting talent from all over Europe. When Knapp joined Cleary Gottlieb in the early 1970s, the firm’s lawyers were split evenly among Americans, Belgians, and other Europeans. The balance shifted after partner Mario Siragusa, a contemporary of Knapp’s, began recruiting his best students from the EU law program of the College d’Europe in Brugge. Today, the firm’s Brussels lawyers hail from 17 nations, and only 5 percent of them are American. The firm has become so much a part of the establishment that it represents France’s Airbus, which is, in Knapp’s phrase, “the most European company there is.” While Cleary Gottlieb enjoys a strong reputation across the board, local practitioners cite some of the other 30 American firms in Brussels for their work in particular antitrust specialties. Among the best-established offices, New York’s White & Case excels in the pharmaceutical sector; D.C.’s Wilmer, Cutler & Pickering stands out in aviation; and Baker & McKenzie is praised for cartel defense. Two firms based in Cleveland, Jones, Day, Reavis & Pogue and Squire, Sanders & Dempsey, have Brussels offices noted for telecommunications work. But the American firm that Cleary Gottlieb is most likely to see on the other side of a merger review hearing is New York’s Skadden, Arps, Slate, Meagher & Flom, whose partner James Venit is rated by many lawyers as the top merger review lawyer in Brussels. Venit, an American who trained at Cleary Gottlieb 20 years ago, left to join Wilmer Cutler in the 1980s and then moved to Skadden in June 2000. Skadden Arps represented Honeywell when it took over Allied Signal in 1999 and again last year, when GE made its run. The firm represented Digital Equipment when it was acquired by Compaq Computer in 1998 and was tapped to represent Compaq in its planned takeover by Hewlett-Packard. THE BRITS ARE THERE Even as more Americans enter the scene, it’s the British firms that pose the most serious threat to Cleary Gottlieb and Skadden. “There’s been a tectonic shift,” says Skadden partner Henry Huser. “We see more and more of our British competitors and less of our American and Continental competitors.” Not surprisingly, the European M&A leaders, Freshfields Bruckhaus and Linklaters, are among the leaders in merger review. Each firm represented a principal party before the EU in about 60 mergers in 2000. (By comparison, Cleary Gottlieb and Skadden each notified the Commission about approximately 30 mergers.) When one factors in reputation and breadth of practice, Freshfields Bruckhaus is clearly the U.K.’s standard-bearer. Freshfields Bruckhaus’ antitrust strength solidified in 1999, when it merged with the German firms Bruckhaus and Deringer. Freshfields Bruckhaus and Deringer both opened in Brussels in 1989. During the next decade, Freshfields Bruckhaus emerged as the city’s leading British office, while Deringer built a reputation as its best German firm. Bruckhaus was on the scene, too, with a strong German subsidies practice. “Strategically, the merger was a way for each of us to break out of being regarded as the Brussels office of a single-nationality firm,” says Davies. He argues that Freshfields Bruckhaus is inevitably more European than Cleary Gottlieb. “For all of Cleary Gottlieb’s great European success,” he says, the firm lacks “deep roots in the major economies.” While no one would argue that Cleary Gottlieb lacks critical mass, Freshfields Bruckhaus has greater advantages of scale than any of the other major competition law players. And these days, scale is needed to move quickly in merger review cases, argues Freshfields Bruckhaus partner Alan Ryan. For example, he says, the acquisition of an agricultural chemical division could require the speedy analysis of some 300 distinct product markets: “You need to go somewhere that can guarantee you that kind of capacity within 48 hours.” Freshfields Bruckhaus’ detractors argue that the firm is too big and that its three-way merger has given rise to ethically compromising conflicts. On that point, Davies responds: “We’ve set up structures within the firm to guard against conflicts, and in every case the clients have given their full consent. It’s a problem most other firms would like to have.” THE NEW FEDERALISM Looking ahead, changes in EU competition law may indeed give the edge to a big firm like Freshfields Bruckhaus. In September 2000, the Commission issued a draft “modernization” regulation, which broadly redesigns EU competition law, but does not directly address merger review. Expected to go into force by the end of 2003, the impending overhaul aims to conserve the Commission’s scarce resources for the biggest cases. Under current rules, a company must notify the Commission about any merger or joint venture no matter how minor. Under the new rules, most competition questions will be decided by national authorities applying EU law. In effect, the national agencies will develop a new federal system of law. In a federal system, the national agencies will take on new importance. A medium-size antitrust issue, which might simply have been ignored under the old system, will now be answered in London or Bonn or Rome. This system is likely to favor the biggest, broadest multijurisidictional firms. Most American firms coordinate all their EU work from either Brussels or London. A handful, notably Cleary Gottlieb, Shearman, and White & Case, have respectable European networks. But the most extensive networks belong to Freshfields Bruckhaus and other expansionist U.K. firms, including Linklaters, Clifford Chance, Allen & Overy, and Lovells. Because their networks extend to Central and Eastern Europe, the London firms are especially well poised if the EU moves to admit Poland, Hungary, and the Czech Republic. Still, the highest-stakes, most desirable cases will remain in Brussels, and modernization will generate tough new questions that top Brussels offices like Cleary Gottlieb’s are best suited to answer. Certainly, for some time, fines and procedures will vary wildly from nation to nation. And on such issues as whether a given joint venture represents an abuse of a dominant position, lawyers can expect years of forum-shopping, appellate litigation, and lobbying. On the topic of merger review, which is in the early stages of its own reform debate, lawyers can’t predict much except that the law will continue to evolve. “Even if M&A deals stay at low levels,” says Skadden Arps’ Huser, “the number of deals raising serious cutting-edge antitrust issues in the Commission or key national agencies won’t decline. If anything, it may grow.” So among the world’s merger-driven specialists, Brussels lawyers may be the only ones with no worries about keeping busy this year.

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