Commission has no longer power to adopt a decision after proposed merger plan notified to it by unde26/02/05 / cata_european-union-news

Decision 2000/790/EC of 28 June 2000 declaring a concentration incompatible with the common market and the EEA Agreement (Case COMP/M.1741 - MCI WorldCom/Sprint) annulled by the judgment of the Court of First Instance in Case T-310/00 of 28 September 2004

On 4 October 1999, the American communications companies WorldCom (now called MCI) and Sprint signed an agreement and plan of merger by which they intended to merge the whole of their businesses (with a combined turnover of about USD 127 billion), and they notified the Commission of the agreement on 10 January 2000. Like the United States competition authorities, the Commission opposed the envisaged merger, taking the view that the transaction had a Community dimension and would lead to the creation of a dominant position for the notifying parties.

On 26 June 2000, Mario Monti, the then European Commissioner responsible for competition stated that his proposal to the Commission would be to prohibit the merger, the topic being included on the agenda for the Commission meeting of 28 June 2000. By letter of 27 June 2000, to prevent the adoption of the contested decision, WorldCom and Sprint formally stated to the Commission that they were withdrawing their notification and that they no longer proposed to implement the envisaged merger in the form presented in the notification.

The Commission nonetheless adopted its decision declaring the merger incompatible with Community law, because it came within the definition of merger for the purposes of Article 3(1)(a) of Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (subsequently repealed by Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings). In essence, it took the view that the letter of the undertakings did not amount to the formal withdrawal of the notified merger agreement.

WorldCom brought an action before the Court of First Instance (the “CFI”) challenging the Commission’s power to adopt the decision. After considering the arguments discussed below, the CFI has annulled the Commission’s decision.

The main question was whether, in the circumstances of the case, the Commission had the power to adopt a decision declaring the notified concentration incompatible with the common market, when, without abandoning their proposed merger, the notifying parties had formally stated that they were withdrawing their notification and that they no longer wished to implement the proposed merger in the form presented in the notification, while leaving open the possibility of merging their activities in a modified form in the future.

The Commission stated that its competence is not limited to notified operations alone, notification being merely the instrument that facilitates the exercise of the competence that the Commission enjoys in any event and which cannot depend solely upon the wishes of the parties. Accordingly, the Commission submits that, since it enjoys control over concentrations regardless of prior notification, conversely parties to a proposed merger cannot deprive it of its competence by withdrawing their notification, unless they also abandon their merger plans.

On the other hand, the parties argued that even if the letter concerned not the abandonment of any idea of, or proposal for, a merger between WorldCom and Sprint, but only the abandonment of the proposed merger in the form presented in the notification, a valid merger agreement does not automatically exist (or continue to exist) between two undertakings simply because they are considering merging (or continue to consider merging). Commission’s competence cannot rest on the mere subjective intentions of the parties, but depends on the conclusion of the merger agreement. In the same way as the Commission does not have the power to adopt a decision before such an agreement has been concluded, it ceases to have that power as soon as the agreement comes to be terminated, even if the undertakings concerned continue negotiations with a view to concluding an agreement in a modified form.

The CFI states the Commission’s settled practice shows that it is satisfied with the mere withdrawal of the notification by the parties concerned in order for it to close, without a decision on the merits, a procedure relating to merger case, and leads to the belief that the withdrawal of the notification is, from the Commission’s point of view, equivalent in practice to abandonment of the proposed merger. In those circumstances, WorldCom and Sprint were entitled to expect their letter to result in closure of the file in accordance with the Commission’s prior administrative practice.

Thus, while it is true that the parties to a merger agreement cannot deprive the Commission of its competence by withdrawing their notification, the Commission still must, when exercising that competence, rule on a real merger transaction and not on vague intentions of the parties to merge their activities in a modified form in the future, as it has done in the present case.

The Commission also infringed the legitimate expectations of the parties by adopting the decision without first informing them that their letter was not sufficient to result in closure of the file.