On 26 October 2017, the European General Court annulled the European Commission's ('Commission') 2014 decision to approve the acquisition by Liberty Global plc of sole control of Dutch-rival Ziggo NV. In particular, the General Court held that the Commission breached its duty to state reasons pursuant to Article 296 of the Treaty on the Functioning of the European Union ('TFEU'); therefore the decision has been annulled in its entirety. The Commission is now required to re-assess the takeover in light of judgment.
Background
In October 2014, the Commission announced that, following a Phase 2 investigation, it had decided to grant conditional approval to the proposed acquisition of Ziggo by Liberty Global.
After the Phase 2 investigation, one of concerns raised by the Commission was that the acquisition, which brought together the two largest cable TV network providers in the Netherlands, would reduce competition in the wholesale supply and acquisition of premium pay TV channels in the Netherlands. In particular, as a result of the transaction, Liberty Global would own the only two premium pay TV film channels in the Netherlands (i.e. Film 1 and HBO Nederland) and three out of the four premium pay TV channels more generally (i.e. Film 1, HBO Nederland and Sport1). To resolve this concern, Liberty Global agreed to divest Film 1.
The Commission acknowledged in its decision that the market for the wholesale supply and acquisition of pay TV channels could be further segmented according to whether they consisted of film or sports channels. However, the Commission left open the precise definition of the market on the basis that no competition concerns arose on either basis.
The General Court's judgment
In 2015, KPN (a competing Dutch cable TV operator) brought an action before the General Court. KPN was concerned that the takeover would provide Liberty Global with the ability to deny access to must-have sports content to its downstream rivals. KPN argued that the Commission had erroneously failed to assess the impact of the transaction on the market for pay TV sports channels and to state reasons for not assessing any vertical effects on that market.
The judgment emphasises that the extent of the Commission's duty to state reasons needs to be assessed on a case-by-case basis. In particular, it is not necessary to state all the relevant facts and points of law and to define its position on matters which are of secondary importance.
However, the Count explained that, if a regulator wants to leave open the definition of the relevant product market on the basis that a possible narrower market definition would not lead to competition concerns, the Commission is still required to explain, at least briefly, the reasons why the proposed transaction did not raise any competition concerns on that narrower market. Consequently, the General Court found that the Commission's decision was vitiated by the Commission's failure to state those reasons. On this basis alone, the Court decided to annul the Commission's decision in its entirety.
What happens now?
The Commission will now have to reinvestigate the acquisition in light of the General Court's judgment and in view of competition conditions prevailing today.
It is not yet clear whether the parties to the acquisition will take the risk of a further Commission merger investigation which could potentially result in Liberty Global being required to offer further remedies, or appeal the General Court's ruling to the Court of Justice.
The judgment marks the second annulment by the General Court of a Commission decision under the EU's Merger Regulation this year. In March 2017, the General Court annulled the Commission's decision to prohibit the UPS/TNT Express merger, finding that the Commission had infringed UPS's rights of defence in its use of an econometric model that had not been shown to UPS.
With thanks to Antonia Bussey of Ashurst for her contribution.
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