Brussels 'broke law' over merger

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In the first case of its kind, the European Commission has been told to compensate a company after being found to have illegally blocked a takeover.

The European Court of First Instance ruled that Brussels had broken EU law by prohibiting French firm Schneider Electric's 2001 acquisition of Legrand.

The ruling may affect other similar cases, such as one brought by MyTravel.

Brussels is to study the ruling but said it was liable for only a fraction of the total costs sought by Schneider.

'Grave disregard'

Schneider demanded 1.7bn euros (£1.1bn) in compensation after the Court, in 2002, annulled the commission's original decision to block the 6.7bn euros Legrand deal.

The company, which has yet to comment on Wednesday's ruling, argued that the affair cost it 2bn euros.

The level of compensation will be a fraction of that Schneider demanded European Commission spokesman

The amount now due will be decided by a financial expert, taking into account losses incurred by Schneider after it was forced to sell Legrand to private equity firm Kohlberg Kravis Roberts for what it said was a knock-down price.

The commission originally rejected the takeover on competition grounds but the court concluded that in reaching its decision, Brussels had committed a "sufficiently serious breach" of law to warrant financial redress.

It ruled that Brussels had failed to give Schneider the right to argue its case in response to some of its objections to the deal.

The failure to do this, the court argued, constituted a "grave and manifest disregard of the limits of their powers" in the matter.

"The court concludes that that illegality, of which neither the existence nor character are disputed by the commission, entails an obligation to make compensation for the harmful consequences," the ruling stated.

Precedent?

The commission, which can appeal against the verdict, pointed to the court's rejection of Schneider's broader claim that there were "other defects" in the regulatory process.

As a result, the firm will be entitled to a lower level of compensation.

"At the worst, the level of compensation will be a fraction of that Schneider demanded," a commission spokesman said.

The ruling was eagerly awaited, partly as a indication of how other contested merger decisions would be treated in law.

MyTravel is seeking compensation arising from its blocked £518m takeover of First Choice Holidays in 1999, a decision which was annulled in 2002.