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EU blocks Three's takeover of O2: "lessons to be learned"

Posted on 16 May 2016

EU blocks Three's takeover of O2: "lessons to be learned"

Last week, the EU Commission refused to approve the proposed merger between Hutchison and O2. Commenting on the decision, Competition lawyer at Mishcon de Reya, Andrij Jurkiw said: "This decision did not come as much of a surprise. However, Hutchison might be forgiven for asking, why was this deal so different from the merger between Hutchison 3G and Telefonica (O2) Ireland in 2014 – which was cleared with conditions – and the merger between Telefonica Deutschland and E-Plus in 2014 – which was also cleared with conditions?

"Both of those cleared deals involved a reduction from four players to three in the relevant domestic markets.  However, the commitments packages offered in the approved deals were accepted by the Commission, unlike the commitments offered in relation to the Hutchison/O2 deal.  Today's statement by the EU competition commissioner sheds some light on why there was this difference in treatment.  It essentially boils down to the structure of the UK mobile market, and the impact this deal would have had on that market if it were allowed to proceed.

"The concerns identified by the EU Commission should not have come as a shock to Hutchison and its advisers.  As such, they will have known what issues needed to be addressed if this deal was to be permitted.  What may have come as something of a surprise, was the Commission's suggestion of the creation of a fourth player in the UK as a condition of approval of the Hutchison/O2 deal.  The EU competition commissioner states, "Hutchison was not prepared to offer this or an equally effective remedy.  What they proposed did not address all of our concerns".

"The reasons for the blockage of the Hutchison/O2 deal are becoming clearer.  Whether the EU Commission was right in rejecting Hutchison's proposed commitments package will, no doubt, become clearer in the fullness of time. 

"There are lessons to be learned from this decision which go wider than simply the mobile telephony market.  Hutchison will need to take stock, quickly, and concentrate on getting its deal to form a 50:50 joint venture with VimpelCom in Italy cleared by the EU Commission, which is another four to three merger.  If that deal is blocked, people will ask why Hutchison invested so much time and money on two deals which it must have known were always going to be difficult to get through.  The revised deadline for the Commission's decision in the VimpelCom case is 18 August 2016.  Watch this space!"