Freshfields Bruckhaus Deringer LLP (‘Freshfields’) represented CK Hutchison Holdings (‘CK Hutchison’), operating under the brand ‘Three’ in the UK, in its successful appeal against the European Commission’s (‘Commission’) 2016 prohibition of its proposed acquisition of Telefónica Europe PLC, which operates in the UK under the brand ‘O2 UK’.
CK Hutchison agreed to purchase O2 UK in a deal worth £10.25bn, following which the transaction was notified to the Commission in September 2015. The Commission blocked the transaction in May 2016, citing concerns that it would have left UK customers with “less choice” and “higher prices”.
CK Hutchison sought annulment of the Commission’s prohibition decision from the General Court of the EU and a two-day hearing took place in May 2019. Today, the Court found in favour of CK Hutchison on each substantive legal ground, stating that the Commission’s analysis had been vitiated by several errors of law and of assessment.
The landmark ruling is the Court’s first judgment on the legal test under the EU Merger Regulation (‘EUMR’) introduced in 2004 and the Commission’s Horizontal Merger Guidelines and is therefore highly significant for the EU’s system of merger control across all sectors of the economy.
The General Court outlined that:
• “the Commission’s application of the assessment criteria of the so-called ‘unilateral’ (or ‘non- coordinated’) effects – namely, the concept of ‘important competitive force’, the closeness of competition between Three and O2 and the quantitative analysis of the effects of the concentration on prices – is vitiated by several errors of law and of assessment”;
• “the mere effect of reducing competitive pressure on the remaining competitors is not, in principle, sufficient in itself to demonstrate a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects”; and
• in relation to the Commission’s novel argument relating to the impact of the merger on network sharing partners, “EU competition rules are primarily intended to protect the competitive process as such, and not competitors … [and] the fact that a concentration affects competitors is not in itself a problem. In particular, the fact that rivals may be harmed because a merger creates efficiencies cannot in itself give rise to competition concerns”.
The judgment will require the Commission to reconsider its practice under the EUMR, with the Court having set a boundary to the Commission’s margin of discretion.
Freshfields advised the applicants in the only two successful appeals against EU merger prohibitions in the last 18 years. This judgment marks only the fifth time in the history of the EUMR that a prohibition has been overturned, following Freshfields advising UPS last year on its successful annulment action against the Commission’s prohibition of it acquiring TNT. Today’s victory adds to a series of significant successes for Freshfields in merger litigation, following the landmark victory in the United States on behalf of Evonik against the FTC earlier this year.
Freshfields advised CK Hutchison from pre-signing negotiations in 2014, through an extended Phase II merger control review and ultimately to the successful annulment action at the General Court. The Freshfields appeal team, based in Brussels and London, was led by partners Thomas Wessely, James Aitken, Michele Davis, Onno Brouwer, and counsel Angeline Woods(i) and was supported by a core team of associates including Imogen Ditchfield, Amaryllis Müller, Susannah Prichard, Maija Hall, Martin Dickson and Koo Asakura. The Freshfields team was supported by Brian Kennelly QC and a team from Frontier Economics led by Zoltan Biro and David Foster.
The CK Hutchison in-house legal team was led by Lorelei Fleming (General Counsel, Europe), supported by James Godden (Deputy Director, Competition and Regulation – Europe).
Commenting on today’s judgment, Freshfields’ partner, Thomas Wessely said:
“We welcome the clarity provided by the Court in today’s important ruling. The Commission will now be required to take a fresh look at its approach to challenging mergers in concentrated markets under the EU Merger Regulation. This will be particularly important in the telecoms industry. For many years, we have been supporting CK Hutchison and other clients on their attempts at consolidating the fragmented European telecoms markets, in which the Commission’s approach has had a chilling effect on investments and innovation in the roll-out of network infrastructure in the EU. Telecoms companies will welcome the Court’s clear guidance to the Commission in its judgment.”
Notes to Editors
About Freshfields Bruckhaus Deringer LLP
Freshfields Bruckhaus Deringer LLP is a global law firm with a long-standing track record of successfully supporting the world’s leading national and multinational corporations, financial institutions and governments on groundbreaking and business-critical mandates. Our 2,800-plus lawyers deliver results worldwide through our own offices and alongside leading local firms. Our commitment, local and multinational expertise, and business know-how means our clients rely on us when it matters most.
(i) Angeline Woods is now Legal Director, Antitrust and EU Affairs at Uber.