LONDON (CNNfn) - The European Union on Wednesday blocked the proposed $129 billion merger of U.S. telecom firms WorldCom Inc. and Sprint Corp., the first time the EU had blocked a deal between companies not based in the 15-nation trading bloc.|
The Commission said it took the decision because of concerns the enlarged company would have dominated access to the Internet. On Monday, Mario Monti, Europe's competition commissioner, had warned the deal appeared unlikely to pass muster.
Monti told CNNfn on Wednesday that the deal would have created a monopoly situation, and pointed out that the Commission and the U.S. Department of Justice had worked closely in reviewing the proposal.
"We had excellent, almost daily, cooperation with the DoJ," Monti told CNNfn, adding that he had discussed the matter with Joel Klein, the U.S.'s head trust-buster, in recent days. The DoJ filed suit Tuesday to block the merger.
WorldCom (WCOM: Research, Estimates) and Sprint (FON: Research, Estimates) said Tuesday they were withdrawing their application for EU approval, in order to better concentrate on persuading U.S. competition authorities to wave through the deal. The Commission said Wednesday that it had nevertheless blocked the combination because the request for approval was not formally cancelled.
The European watchdog rejected the companies' proposal to offload Sprint's Internet assets to allay competition concerns, saying the unit was too closely tied with the rest of the firm.
In a statement the Commission said the merger would, "through the combination of the merging parties' extensive networks and large customer base, have led to the creation of such a powerful force that both competitors and customers would have been dependent on the new company to obtain universal Internet connectivity," allowing the new company "to dictate conditions and prices in the market to the detriment of consumers around the world."
It was the 13th merger blocked by the Commission since it was granted the power to investigate large deals in 1990, while its objections have caused many other deals to be either withdrawn or substantially altered. The last high-profile merger it blocked was Volvo's attempted takeover of fellow Swedish truck maker Scania last month.
The Commission currently has 40 deals to examine, of which eight will be four-month investigations.
Alex Nourry, a competition lawyer at law firm Clifford Chance, said there had been earlier occasions when the Commission had come close to vetoing deals between non-EU companies - for example, it demanded substantial concessions before approving the tie between U.S. aerospace firms Boeing Co. (BA: Research, Estimates) and McDonnell Douglas Co.
Monti maintained Wednesday that the nationalities of companies that are merging was "not relevant", and that the only thing he had to consider in such cases was whether a dominant position would be created or strengthened.
The Commission is currently undertaking in-depth probes of planned deals† between EMI Group PLC (EMI) and Warner Music and America Online Inc. (AOL: Research, Estimates) and Time Warner Inc (TWX: Research, Estimates), the parent of CNNfn.com. The Commission is also mounting a separate investigation into whether software firm Microsoft Corp. †(MSFT: Research, Estimates) has acted as a monopoly.
Monti told CNNfn Wednesday he had "serious concerns" about the AOL merger with Time Warner, and was consulting on a regular basis with the relevant U.S. authority - in this case the Federal Trade Commission.