By Simon Zekaria - 30th March 2004
Former telecommunications titan WorldCom, disgraced by fraud, has challenged the European Commission in the EU courts for rejecting a merger with rival Sprint.
The legal hearing at the Court of First Instance on Tuesday, the EU’s sister court to the European Court of Justice in Luxembourg, saw the US company – now called MCI – who was formerly brought to book over an accounting scandal, seek to annul the commission’s decision to scupper a €100 billion merger.
In doing so, the company is seeking clarification from the CFI on the legal competence of Brussels to rule against the deal.
EU regulators under the direction of EU competition commissioner Mario Monti announced their intention to block the tie-up in 2000 - but before the EU rejection was formally filed, the companies themselves called off the whole deal.
US antitrust authorities also threatened to take legal action to block the WorldCom/Sprint deal, adding pressure to the parties brokering the transaction.
MCI believes that since the commission voted to formally block the deal after the merger was already withdrawn, the EU exceeded legal powers afforded to it under community antitrust law.
And the hearing, whilst not questioning the actual substance of the decision, challenged the commission on two counts: whether Tuesday's action for annulment is admissible and whether the EU executive has the legal capacity to block a merger that has already been withdrawn.
If the court rules MCI has a case on both counts, then future court action - with compensation for damages - is likely.
But there is a sting in the tail for WorldCom.
If the court finds that deal's demise was down to other factors than the contested EU decision, the case could be classified as inadmissible.
And Worldcom at the CFI on Tuesday has already distanced itself from the commission's competition authorities in abandoning the transaction.
From the court hearing: "WorldCom and Sprint themselves made it plain that they abandoned their merger plans for reasons unconnected with the contested decision. According to the applicant's statements, the proposed concentration was abandoned solely because of the opposition of the Department of Justice".
The WorldCom/MCI deal was significant since it would have consolidated power in global telecommunications; with a merger leaving only one major competitor, AT&T, in the running for market leverage.
However, since both antitrust sides across the Atlantic held reservations on the tie-up, its blocking did not cause as much friction between regulators in the EU and US as the GE/Honeywell case did in 2002.
WorldCom has since suffered bankruptcy resulting from a €9bn accounting scandal in the same year – leading to new corporate identity under MCI.
The case followed high-profile fraud involving Enron and Andersen.
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