General Court Annuls 2013 EU Veto on the TNT Acquisition by UPS

Logistics and transportation circular illustration - vector colorful logistic sign General Court Annuls 2013 EU Veto on the TNT Acquisition by UPS

For the first time in over a decade, the General Court of the European Union has annulled a European Commission (EC or Commission) decision to block a deal. This is a rare setback for the EC’s merger control program.

The ruling overturns a January 2013 move by the EC to stop global package delivery company, United Parcel Service (UPS), from acquiring a rival, TNT Holdings. The EC’s decision turned on its finding that the transaction would have restricted competition in 15 Member States regarding express delivery of small packages to other European countries. The Commission argued that the transaction would remove one of the four top players in Europe, leaving DHL as the only remaining significant competitor and FedEx as a distant third, with a European network lacking the density and scale to exert a meaningful competitive constraint on a combined UPS/TNT.

Now, four years later, the General Court has annulled the EC’s decision based mainly on procedural due process grounds. The Court concluded that the EC had based its action on an econometric analysis–which predicted prices rising after the merger–that the Commission had changed after having last discussed it with the parties. UPS was not informed about these changes or given any opportunity to comment on the final version of the analysis. The Court noted the central role of that study with regard to the EC’s prediction on price effects, and it found that UPS “might have been better able to defend itself if it had had at its disposal, before the adoption of [the] decision, the final version of the econometric model”. The Court highlighted the importance of the rights of defense in merger proceedings as a general principle of EU law enshrined in the Charter of Fundamental Rights and concluded that the Commission had infringed UPS’s right to a fair hearing. The Court therefore annulled the Commission’s prohibition decision without examining other arguments brought by UPS in its claim.

The General Court rarely overturns Commission decisions that block a merger. After the notorious year 2002 with three annulment decisions (Airtours/First Choice, Schneider Electric/Legrand and Tetra Laval/Sidel), the last annulment of a prohibition decision took place in 2004 (merger of MCI WorldCom and Sprint).

For the merging parties, the practical benefits of an appeal often seem limited because during the appeal they must still suspend the implementation of the transaction and the judicial process may take many years. By the time the EU courts hand down a judgment, the parties often have abandoned the transaction and market realities have changed. In the present case, after the 2013 prohibition decision, the Commission approved the acquisition of TNT by FedEx in January 2016.

Nonetheless, this does not mean that UPS had no interest in challenging the prohibition decision. Besides the general interest of having the courts clarify European merger control rules, UPS may be able to apply for damages on the basis of the Court’s annulment decision.

The Commission can still appeal the General Court’s decision to the European Court of Justice. The Court of Justice has disagreed with the lower court in the past (as it did in the Sony/BMG merger). Given the EC’s incentive to appeal, the story might not be over yet, despite the markets having moved on.