European Court of First Instance Upholds Acquisition by Morgan Lewis Clients Apollo Management and Hexion

On July 9, 2007, the European Court of First Instance handed down a judgment in favor of Apollo Management and Hexion Specialty Chemicals, Inc., upholding Hexion’s acquisition of Akzo Nobel’s Inks and Adhesives Resins business. The European Commission had cleared the acquisition—despite apparently high market shares and some third-party opposition—because it agreed with Hexion that the acquisition would not give Hexion the ability to raise prices. The appeal to the Court of First Instance against the Commission’s decision alleged that the Commission should have found the acquisition to be anticompetitive under the Commission’s Horizontal Merger Guidelines. The Court rejected that contention, concluding that the Commission was correct on every point, and awarded costs to Apollo and Hexion.

The case is the first time the Court has considered the concept of “noncoordinated effects” (a firm’s ability to raise prices unilaterally) under the Commission’s Horizontal Merger Guidelines, and only the second time the Court has considered “coordinated effects” (the ability of firms to collude either explicitly or tacitly) under the Guidelines. The decision provides useful guidance on a variety of important issues relevant to merger analysis, such as the market factors necessary to enable firms to collude, when market shares are sufficient to presume “dominance” (monopoly power), the role of concentration in merger analysis, when parties should be considered close competitors, and how to analyze alternate suppliers, barriers to switching suppliers, and buyer power.

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