Schneider Electric Wins EU Compensation for Takeover Block

Schneider Electric won compensation from the EU on Wednesday for its refusal to let the company buy Legrand in 2001, the first time a court has ordered regulators to reimburse a business for losses due to a takeover ban that was later overturned.

The EU's Court of First Instance ruled that Schneider should be paid back for two-thirds of its losses caused by a delay in its EU-ordered divestiture of French electrical equipment group Legrand as regulators examined the deal for a second time.

It did not give a total for this figure, which a court-appointed expert will calculate in the coming months. Schneider finally sold its majority stake in Legrand to Wendel Investissement and private equity firm Kohlberg Kravis Roberts & Co. for 3.63 billion euros ($4.96 billion) in 2002.

The European Commission said, however, that the court had rejected the major part of Schneider's claim for 1.7 billion euros ($2.3 billion) in compensation. It said it would decide whether to challenge the ruling before an autumn deadline.

Schneider Electric had no immediate comment.

A similar compensation case is pending before the court as AirTours - now known as MyTravel - is seeking EU compensation for money it lost when regulators forbade its 1999 bid for First Choice Holidays, another decision overturned on appeal.

Wednesday's ruling sets a legal standard for EU regulators to be liable in such cases, saying there had to be "grave and manifest disregard of the limits of their powers of assessment" - meaning their refusal to allow the company a hearing to argue its case against new theories before the European Commission makes a decision to ban the deal.

Allowed to Argue

The court said Schneider should have been allowed to argue against the Commission's theory - first mentioned in the merger ban - that the takeover would buttress Schneider's dominant position as a supplier of electrical panel-board components and Legrand's leading position in the electrical equipment market segments.

The refusal to hold a hearing deprived Schneider of any way of knowing that the Commission was likely to block the deal unless it made the changes the EU was looking for, the court said.

It granted Schneider the right to claim compensation for two-thirds of the loss it had when it had to postpone the sale of its 98% holding in Legrand to Wendel and KKR beyond an agreed-on date.

Schneider sold Legrand well below the 7.9 billion euros ($7.2 billion) it paid in 2001 to create a world leader in low-voltage electrical equipment such as fuse boxes, plugs, switches and other electrical equipment around the house.

The court did not give Schneider the right to its full losses, saying the company had contributed to its own woes by assuming the real risk that the takeover would fail to win EU approval and it would have to resell its Legrand holdings.

Schneider also won expenses it incurred during regulators' second examination of the case in 2002 after the court overturned the EU's refusal.