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When legal scholars look back years from now on Mario Monti as the European Union’s top merger vetter, they may well break down his five-year reign that ended in November into two distinct parts. The demarcation line would be a trio of embarrassing court decisions in 2002 overturning European Commission merger vetoes, which the former economics professor actually turned to his advantage by fine-tuning the overhaul of EU merger rules already under way at the time. Once dubbed “Super Mario,” the same man who a year earlier had killed General Electric Co.’s $47 billion bid for Honeywell International Inc. after Washington had already approved it will — whether he likes it or not — forever be associated with those decisions. Over a four-month period, the Luxembourg-based European Court of First Instance knocked down the commission’s vetoes of Airtours plc (now MyTravel Group plc’s �850 million ($1.64 billion) bid to buy First Choice Holidays plc; Schneider Electric SA’s takeover of Legrand SA; and packaging company Tetra Laval SA’s euro1.7 billion ($2.3 billion) buy of French rival Sidel SA. The combination of losses in all three cases “was very damaging in a number of ways,” said Trevor Soames, a Brussels-based partner with Howrey Simon Arnold & White. “It came at a time when in drafting the new EU constitution there were substantial moves to try to remove from the commission its competence relating to antitrust.” An irony is that the skepticism in 1999 over whether Monti would be able to fill the shoes of his predecessor, the outspoken and dynamic Karel van Miert, now seems rather quaint in comparison to the flap over Monti’s own successor. Neelie Kroes, the first EU antitrust chief with an extensive corporate background, came under intense scrutiny even before taking the job and has already had to recuse herself from some cases as per the code of conduct that she and Commission President Jos� Manuel Barroso have drafted. Time will tell if the Dutchwoman will be able to keep her promises. Monti had his setbacks in those court defeats but was able to limit the damage by viewing them as a challenge. “His very rapid and positive reaction on merger reform substantially helped to diffuse these sorts of measures,” Soames said. Monti dismantled the all-powerful, notoriously arrogant merger task force and replaced it with sector-specific antitrust units; appointed Lars-Hendrik R�ller as chief economist; and called for regular use of “devil’s advocate panels” in which officials not involved in a particular case look over a file with a fresh set of eyes. “I’m sure as we get further away from it that it will be seen as a turning point in the way competition cases were handled,” said partner Alec Burnside of Linklaters’ Brussels office. But he and others concede that there is also a downside, namely a more cautious commission — some say to the point of paranoia — overly concerned about protecting itself from future court challenges. Burnside complained that EU regulators have become “ultrademanding” in terms of evidence gathering, requiring merging companies and their lawyers to comply with very onerous information requests “on very short time scales.” In addition, the commission’s increased flexibility on merger review timetables — in part to coordinate more closely with their U.S. counterparts — has removed some of the legal certainty associated with the EU’s previously extremely strict timetables. “Part of that has to be genuine and a useful improvement in investigations, but part of it also has to be self-preservation,” argued Burnside, who voiced his concerns publicly to Monti and a roomful of lawyers and competition officials at Monti’s last official public appearance as EU competition commissioner. Monti denied that was the case, insisting that regulators have learned from setbacks in the course, though acknowledging it may appear that the commission has taken a less aggressive approach toward mergers. “It’s not that the commission has softened its stance, but it has been taken more seriously,” he insisted, continuing to put a positive spin on the court defeats. That point may be debated for a long time. True, the commission has prohibited only 18 out of more than 2,500 mergers notified since 1990, but few can deny that some of the bigger deals that recently passed muster would have gotten a rougher ride before the merger reforms took effect. Take the case of Carnival Corp.’s $5.5 billion bid for Britain’s P&O Princess Cruises plc, approved by the commission in July 2002, just after the court reversed the commission on Airtours. It was one of the first cases in which the commission used a devil’s advocate panel. Or the proposed merger between Sony Corp.’s and Bertelsmann AG’s music units, which regulators waved through unconditionally in June 2004 despite initial intentions to impose a number of tough conditions. Here, too, the turn about came after a devil’s advocate panel got involved. Much to the surprise and ire of independent record companies and other opponents to the deal, the panel criticized case handlers for failing to back up their argument that the combination would strengthen major record companies’ ability to set prices in tacit collusion. More recently, in its last competition decision before handing over to a new team, the commission also unconditionally approved Oracle Corp.’s $7.7 billion hostile bid for PeopleSoft Inc. at the end of October. Concluding that there was an “absence of evidence of competitive harm,” the commission thus ended perhaps the longest investigation ever about a year after the deal was originally notified, having stopped the clock at least three times to gather more information from the companies. Was the Super Mario era a thing of the past? Not precisely. Team Monti may have appeared to be more lenient on mergers in the past couple of years, but it certainly exhibited toughness on other cases. Consider the commission’s euro497 million fine against Microsoft Corp. after concluding the company abused its dominance in PC operating systems and the EC’s continued fight against France over government handouts to Alstom SA and France T�l�com SA. Overhauling the merger reform laws, and the accompanying reform of the EU’s four-decade-old antitrust regulations, which both took effect the day the EU accepted 10 new member states May 1, was also no small task. Above all, Monti will be remembered for his independence and willingness to fight political influences, especially in the area of state aid. “Monti has been very independent and not influenced by political or other considerations in the member states,” said Mario Siragusa, a Rome-based partner with Cleary, Gottlieb, Steen & Hamilton. While his successors already established a high standard in that area, “Monti probably has strengthened that, particularly in the state aid area where political influences are traditionally more likely to occur.” Copyright �2004 TDD, LLC. All rights reserved.

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