GermanyTheenergysectormergerbetweenRuhrgasandEon

31 March 2003

Felix Hauck

The recent merger between Ruhrgas and Eon involved a combination of Germany’s leading gas and electricity suppliers and was the largest merger in Germany since 1999, having a combined value of over €10 billion. The merger faced strong opposition under German competition law before a settlement was found enabling the transaction to proceed.

Eon and Ruhrgas notified their intention to merge to the Federal Cartel Office (FCO) according to the German Act against Restraints of Competition (ARC) but in January 2002, the FCO prohibited the merger on grounds that it would respectively strengthen the dominant market position of Ruhrgas and Eon in the gas and the electricity markets without the adverse effects on competition being outweighed by the economic improvements for competition (section 36 (1) ARC).

Eon and Ruhrgas appealed the decision to the Court of Appeals and in addition applied for a permission of the merger with the Ministry of Economics. The Minister of Economics grants permission under Section 42 ARC if the restraints of competition caused by the merger are outweighed by economic advantages for the whole German economy. The Minister of Economics finally granted the permission in July after Eon had (i) committed to selling shares it held in other energy providers and (ii) declared its intention to invest e6-8 billion into the natural gas division in order to strengthen the international competitiveness of the German gas sector.

Competitors of Eon and Ruhrgas applied successfully for an interlocutory injunction with the Court of Appeals in Düsseldorf to stop the implementation of the merger on the ground that the Minister of Economics granted the permission in violation of essential procedural rules. The Court of Appeals based its findings on two aspects:

(1) The Minister of Economics is required to make his decision as to granting permission on the basis of an oral hearing in which all parties involved can put forward their arguments. In this case the Minister of Economics granted the permission without personally attending the oral hearing, thus violating a procedural rule which is designed to guarantee that the Minister himself can form his own final opinion on the basis of all arguments brought forward in the oral hearing.

(2) Eon did not make the commitments mentioned above until after the hearing. Thus, the competitors of Eon and Ruhrgas did not have the opportunity to put forward their views on the quality of Eon’s concessions to the Minister of Economics, which violated the competitors’ fundamental procedural right to be heard, as laid down in the ARC.

On January 28, 2003, the Court of Appeals confirmed its point of view with respect to the infringement of procedural rules, in the oral hearing of the main proceedings. In addition, the Court doubted that the merger is of benefit for the whole German economy by guaranteeing the provision of energy. Against this background, Eon and Ruhrgas sought an out of court settlement with the nine complainants which was finally agreed on 31 January 2003 on the basis of which the complaints were withdrawn. As a result, the permission of the Minister of Economics became final regardless of the fact that the legal requirements for granting the permission had been shown not to be met.