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A European appeals court Thursday overturned a European Union merger prohibition for the first time in a decision expected to make it much harder for EU regulators to block corporate combinations. In the ruling, the Luxembourg-based European Court of First Instance struck down the Commission’s 1999 veto of MyTravel Group plc’s �850 million ($1.2 billion) unsolicited bid for a smaller U.K. rival, First Choice Holidays plc. While the court did not disagree with the legal principles the European Commission applied, it said the EU executive body had failed to factually justify its conclusion that merging the travel companies would harm competition. “The court finds that the Commission prohibited the transaction without proving that it would actually have an adverse effect on competition and it annuls the decision,” the court said in a statement. Commission spokeswoman Amelia Torres said Thursday that the Commission had not yet decided whether to appeal the decision. An appeal, which must be made within two months, would be limited to issues of law rather than fact. While it’s uncertain whether MyTravel will revive its bid, the ruling is expected to give a boost to mergers and acquisitions across the 15 member nations of the EU. The decision marks a second landmark court ruling for the EU in a week. Only two days earlier, the European Court of Justice — Europe’s highest court — drastically curbed the rights of EU member states to use their “golden shares” to keep unwanted investors out of domestic companies. In Thursday’s ruling, the Court of First Instance struck down a controversial Commission decision reached only five days after Mario Monti became the EU’s competition commissioner. The Commission had blocked the takeover bid by Britain’s largest travel company, reasoning that a deal would lead to “collective dominance” of the package-tour industry by a few operators. The Commission held that a merger would have resulted in only three major travel companies controlling nearly 80 percent of the U.K. market: the combination of MyTravel Group (called Airtours plc at the time of the deal) and First Choice; a Preussag AG unit, Thomson Travel; and Thomas Cook, a 50-50 joint venture between KarstadtQuelle AG and Deutsche Lufthansa AG. The decision marked one of the first appearances of the controversial theory of collective dominance. The collective dominance rationale drew fire for allegedly giving the Commission too much latitude to prevent mergers. In essence, the theory examines whether a merger would leave a small group of companies in a sector (rather than a single giant) able to preclude fair competition. MyTravel appealed the Commission’s decision, arguing that regulators failed to show that the concentration would lead to a position of collective dominance by the leading U.K. companies. The court agreed, holding that the Commission failed to meet three conditions for proving collective dominance: that each member of the group knows how the others are behaving, that the companies involved are deterred from departing from the agreed-upon policy and that the policy is able to withstand challenge by small tour operators, potential rivals and British consumers. MyTravel CEO Tim Byrne said in a statement that the court decision provides clarification of EU rules pertaining to merging companies. A spokeswoman for Brunswick, the public relations firm for MyTravel, declined to say whether the company planned to launch a new bid. In a statement, First Choice said the decision will “enable it to participate in any future industry consolidation,” without elaborating. Monti said Thursday that he took full responsibility for the decision and noted that the court has not questioned the application of EU merger rules to situations of collective dominance. He said that the decision would provide useful guidance as the Commission prepares guidelines on the assessment of market power in merger control, due to be completed before year’s end. Malcolm Nicholson from Slaughter and May was lead counsel to MyTravel on the appeal. Competition lawyers said Thursday’s decision has far-reaching implications for EU competition law, not only because it constitutes the court’s most extensive statement so far on collective dominance, but because it will raise the bar for prohibiting any type of merger. “It will no doubt set a very high standard for future prohibition cases,” said David Harrison, a partner at Allen & Overy in Brussels. The decision comes at a time when Monti faces increasing criticism for being too tough on mergers, especially after last year’s veto of General Electric Co.’s $47 million bid for Honeywell International Inc., which has been appealed. The court is scheduled to rule on several other Commission vetoes of mergers: WorldCom Inc. and Sprint Corp., Legrand SA and Schneider Electric and Tetra Laval International SA and Sidel SA. The latter two have been put on a new “fast track” appeals procedure. The Commission has prohibited 18 out of more than 2,000 mergers it has reviewed since September 2000. Half of the 18 have been appealed, though one was subsequently withdrawn. The court has upheld three prohibitions and still must rule on appeals of seven clearance decisions. Copyright �2002 TDD, LLC. All rights reserved.

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