Breakingviews- Liberty Global’s M&A upset doesn’t make sense
(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)
By Olaf Storbeck and Quentin Webb
LONDON, Aug 16 (Reuters Breakingviews) - Liberty Global’s (LBTYA.O) German M&A upset is problematic. Nearly two years after the country’s cartel office allowed John Malone’s cable group to buy local outfit Kabel BW for 3.2 billion euros, a court in Duesseldorf has overturned that decision. The legal uncertainty could drag on for several more years. It’s probably inevitable that the wheels of justice grind slowly. But the “nein” itself depends on flimsy thinking.
When assessing if mergers will squash competition, it makes perfect sense to think about how markets will develop in future. But this ruling, by Duesseldorf judge Juergen Kuehnen, seems to go a step too far.
That’s because Kabel BW and Liberty’s existing Unitymedia unit did not compete directly but operated cable networks in different parts of Germany. For Kuehnen, though, what is important is that Kabel BW might have entered Unitymedia’s market within three to five years.
That sounds both speculative and implausible. Kabel BW never publicly indicated such a move. And expanding a cable network is very expensive. The investment case, hard at the best of times, is even trickier if another network is already in the ground.
In addition, the cartel office had extracted significant concessions before allowing the takeover. And its stance was backed by Germany’s independent monopoly commission.
For Liberty this lengthy process could eventually prove more of an annoyance than anything else. The group can still try to appeal to a higher court. If it loses again, the cartel office will re-assess the merger. That could prompt new demands, such as the divestment of a portion of Kabel BW’s subscriber base, or third-party access to the network. These would probably be unwelcome but manageable. The worst case would force Liberty to disentangle and divest Kabel BW. But that seems unlikely.
Any legal system of “merger control” needs checks and balances, with ways to appeal and reverse bad decisions. But on the evidence of this case, the judicial bar for overturning completed deals in Germany should be a bit higher. And focusing on hypothetical future management decisions introduces too much uncertainty.
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- On Aug. 14, a regional court in Duesseldorf overturned the 2011 decision by Germany’s cartel office to approve Liberty Global’s 3.2 billion euro purchase of cable firm Kabel BW. “Potential competition has been eliminated,” said the court’s presiding judge, Juergen Kuehnen. The cartel office must now re-examine the case.
- Liberty Global’s Unitymedia arm said it would use all available legal means to fight the decision.
- Court press release (German) link.reuters.com/syv42v
- Reuters: Liberty's KabelBW deal in jeopardy after court ruling [ID:nL6N0GF1XK]
- For previous columns by the author, Reuters customers can click on [WEBB/]
(Editing by Chris Hughes and Sarah Bailey)
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