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Court Blocks E.On – Ruhrgas Deal

German energy giant E.On AG was set to takeover Ruhrgas AG in a deal that would have created Europe’s largest private gas group. Now a Düsseldorf court is blocking the takeover claiming it would violate antitrust law.

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E.On waits out court hearing on Ruhrgas takeover bid

Just a week ago German electricity giant E.On looked like it was on the verge of taking over the country’s leading gas distributor, Ruhrgas AG. A decision on July 5 by the German Economics Ministry had paved the way for the deal by overriding an earlier ruling by the Federal Cartel Office which had refused the takeover on the basis of "antitrust misgivings."

The deal, estimated at about 10 billion euro ($9.8 billion), would give E.On a 25.5 share in Ruhrgas and make the combined company Europe’s largest private gas group.

Now a higher regional court in Düsseldorf has called the takeover deal and the ministry’s decision into question. The court, which is responsible for handling all antitrust affairs, has said it has "serious doubts" as to whether the Economics Ministry had the power to approve such a deal.

In addition, two rival energy suppliers, Berlin-based Ampere and Aachen-based Trianel, have submitted an emergency application to the court for a review of the takeover’s legal basis. The two smaller companies claim they would suffer a considerable competitive disadvantage if the E.On – Ruhrgas merger follows through.

Doubts over ministerial approval

Claudia Neuhaus, spokesperson for the Düsseldorf court, said the court’s decision to postpone the takeover was based on "serious doubts on whether the ministerial clearance was legal." The court decided on Friday that the ministry had not properly examined where responsibility for the takeover approval lies, Neuhaus said. The two last-minute applications from Ampere and Trianel only help strengthen this position.

In such large merger cases with "community-wide significance," the European Union is normally responsible for approving takeover deals. Therefore, the case should not have been decided on the national level, Neuhaus explained, "the EU should have granted its approval first."

An Economics Ministry spokesperson countered the court’s statements, saying ministry officials had carried out an exhaustive study of the role of ministerial clearance. They had come to the conclusion that the decision to approve the merger was compatible with EU law.

The EU Commission, in turn, has said it continues to abide by its previous view that it is not responsible for the ruling on the E.On-Ruhrgas deal. The approval for the merger falls within national jurisdiction, the Commission announced on Monday.

"We have no doubt that this is a case for Germany," said a spokesperson for Mario Monti, the EU Commissioner for Competition.

But Germany is having a difficult time deciding on a common approach to the merger.

Conflicting views on national level

E.On’s bid to buy a stake in Ruhrgas was originally referred to the Federal Cartel Office in January, as the EU Commission recommended, but was rejected on grounds that the merged gas group would monopolize Germany’s gas and electricity market. If approved, the combined E.On-Ruhrgas company would have controlled over 60 percent of Germany’s gas and one-third of its electricity market. The Cartel Office ruled that such dominance would strangle competition.

E.On’s Chief Executive Officer, Ulrich Hartmann, immediately protested the decision. Arguing that the Cartel Office ruling failed to take into account Germany’s energy policy needs, he applied for ministerial clearance. On July 5, the Economics Ministry approved the merger, saying the deal would spur competition in the sector.

Undersecretary Alfred Tacke said the merger was in line with the country’s energy policy and would help to reduce price fluctuations and ensure continuous natural gas supplies. "We need strong buyers dealing directly with natural gas producers and improved access to natural gas productions," Tacke said justifying the ministry’s decision to overturn the antitrust ruling.

The Economics Ministry rarely overrules the Federal Cartel Office, but it can do so in cases where economic advantages take precedence over competitive factors or the merger is in the public interest. Natural gas supplies are a sensitive political subject in Germany, which imports 80 percent of its natural gas. And efforts to maintain sufficient supplies were an important consideration in the ministry’s decision.

The Federal Cartel Office nonetheless reacted to the ministry’s ruling with "fundamental skepticism" and warned that the merger would lead to a monopoly of the energy market.

To merge or not?

E.On applauded the July 5 decision, even though rumors were already circulating that the decision would come up again for a court hearing in the near future. Almost directly after the ministry’s announcement, Ampere and Trianel lodged their applications for review with the Düsseldorf court.

A final decision is not expected until July 24 when the Düsseldorf high court convenes to hear the case and evaluate the ministry’s approval process. In the meantime, the takeover of Ruhrgas by E.On is temporarily on hold.