Oracle/Sun: Why European Union jurisdiction matters

Oracle/Sun exceeds monetary thresholds, giving European Union power to object

Previous cases show that European regulators have broad powers over American companies that do business in Europe.

A mild war of words is breaking out between American and European regulators on the proposed merger between Oracle and Sun.

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U.S. government officials have expressed displeasure with the European Commission's objection to Oracle's planned acquisition of Sun. But American officials are not contesting Europe's jurisdiction over the matter and previous cases show that European regulators have broad powers over American companies that do business in Europe.

The European Commission issued a fine of more than $1 billion to Intel this year after finding the company guilty of antitrust violations. In rare cases, Europe has also blocked mergers between American companies. In 2001, for example, Europe prevented a merger between General Electric and Honeywell even after American regulators had given the deal a green light.

"If the annual turnover of the combined businesses exceeds specified thresholds in terms of global and European sales, the proposed merger must be notified to the European Commission, which must examine it," European officials explain on their official competition Web site. "These rules apply to all mergers no matter where in the world the merging companies have their registered office, headquarters, activities or production facilities. This is so because even mergers between companies based outside the European Union may affect markets in the EU if the companies do business in the EU."

In its merger regulation, the EU stipulates that it has control over mergers in which the combined worldwide revenue of the companies involved exceeds $7.5 billion, and more than $374 million within Europe.

In fiscal 2009, Oracle alone pulled in more than $23 billion in worldwide revenue and nearly $8 billion in the Europe, Middle East & Africa (EMEA) region. Sun earned $11.4 billion in worldwide revenue in fiscal 2009, and $3.8 billion in Europe.

When Oracle first announced its deal to purchase Sun in April, the merger was valued at $7.4 billion.

Although U.S. officials gave Oracle and Sun the green light, the European Commission issued a formal statement of objections this week, a decision that could scuttle the acquisition.

European officials objected to "the combination of Sun's open source MySQL database product with Oracle's enterprise database products and its potential negative effects on competition in the market for database products," Sun said in a filing with the U.S. Securities and Exchange Commission.

U.S. officials issued a mild criticism of their European counterparts.

"Several factors led the [U.S. Antitrust] Division to conclude that the proposed transaction is unlikely to be anticompetitive," Deputy Assistant Attorney General Molly Boast of the Department of Justice's Antitrust Division said in a written statement. "There are many open-source and proprietary database competitors. The Division concluded, based on the specific facts at issue in the transaction, that consumer harm is unlikely because customers would continue to have choices from a variety of well established and widely accepted database products. The Department also concluded that there is a large community of developers and users of Sun's open source database with significant expertise in maintaining and improving the software, and who could support a derivative version of it."

The U.S. comments were described as "unusual" by a European official.

According to the Reuters wire service, a European Commission spokesman named Jonathan Todd said "That's unusual. I cannot recall any instance where the European Commission has ever issued a statement concerning ongoing investigations in another jurisdiction."

Todd further noted that the United States and Europe have different methods of judging whether a deal is anticompetitive.

"We have our methods, they have theirs. We apply European merger control rules, they apply U.S. merger control rules," Todd said.

The GE/Honeywell failure was the last time U.S. and European authorities have issued different decisions on a merger, according to the Reuters article.

In her statement, Boast said the United States will continue to work with Europe on competition policy.

"The Department and the European Commission have a strong and positive relationship on competition policy matters," Boast said. "The two competition authorities have enjoyed close and cooperative relations. The Antitrust Division will continue to work constructively with the EC and competition authorities in other jurisdictions to preserve sound antitrust enforcement policies that benefit consumers around the world."

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