Court orders EU regulators to pay damages in landmark case

(BRUSSELS) - A top European court ordered EU antitrust regulators Wednesday to pay damages to French firm Schneider for wrongfully blocking its takeover bid of a rival, potentially opening a floodgate to other cases.

Schneider Electric, an electric equipment company, is seeking 1.66 billion euros (2.3 billion dollars) in damages from the European Commission for errors it made in blocking its takeover of French rival Legrand.

Accusing the Commission of "grave and manifest failure" in its handling of the case, the Luxembourg-based European Court of First Justice awarded Schneider the right to damages, the amount of which remains to be determined.

In reaction, Commission spokesman for competition issues Jonathan Todd said "we will study the ruling carefully" and that a decision would be taken on whether to appeal in the two months and 10 days allowed.

He said that in "the worst case" the Commission would only be required to pay a "fraction" of the 1.6 billion euros sought by Schneider.

The decision caught legal eagles in Brussels off guard with antitrust lawyers describing it as "surprising", "astounding" or "scandalous".

"This decision is extremely surprising because it goes against the grain of the jurisprudence established by the court," one competition expert in Brussels said of the ruling, which he described as "shocking".

The case goes back to October 2001, the Commission blocked Schneider's takeover of Legrand, ruling that the merger of the two French companies would weaken competition on European markets for low-voltage electrical equipment.

However, at the time of the ruling, Schneider had already acquired 98 percent of Legrand's shares and subsequently sold the stake at a loss to satisfy the Commission, the EU's top regulator.

Schneider bought its stake in Legrand for 5.4 billion euros in cash and shares and sold it to US private equity fund Kohlberg, Kravis and Roberts and French holding firm Wendel Investissement for 3.63 billion euros in 2002.

In October 2002, the EU court annuled the Commission's veto on the deal after finding that its antitrust review of the deal was riddled with "errors and omissions".

Although the two companies did not try to give another shot at tying the knot, Schneider decided to try to make the European Commission pay for lost time and money.

The company filed 1.66 billion euros in damages in 2004, arguing that given the errors made, the Commission had overstepped its powers to review mergers for threats to competition on European markets.

"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," it ruled.

"The court rejects, however, Schneider's claim that there are other defects in the merger control procedure," it added.

Todd said that "the commission has learnt its lesson" following a series court decisions overturning its vetoes on mergers and had since reformed its procedures to avoid mistakes.

The ruling in Schneider's favour marks the first time a company has won damages from the European Union's antitrust watchdog, and could open the way for more cases to be brought against the Commission in the future.

British package tours group Airtours, which has since been renamed MyTravel, is also seeking damages from the Commission for blocking its 1999 takeover of First Choice, a decision which the court has also ruled to be flawed.

The court's ruling was one of two blows it dealt to the Commission on Wednesday after it also annulled a decision by EU antitrust regulators to order De Beers of South Africa to stop buying diamonds from Alrosa of Russia.

Judgment of the Court of First Instance in Case T-351/03
Schneider Electric / Commission - European Court of Justice press release