Legal Eye: Poland on the defensive

EU Competition Commisioner Neelie Kroes' comment in the adjacent article sums up the seriousness of the accusation.

Background

In 1999 Italian bank Unicredito purchased a controlling stake in Bank Pekao from the Polish State Treasury. The terms of Bank Pekao's privatization included a requirement that Unicredito would refrain from making further acquisitions in the Polish banking sector for a period of 10 years. Six years later, in June 2005, Unicredito announced its intention to purchase Bayeriwsche Hypo-und Vereinsbank AG, a German bank, which in turn controls BPH.

In October 2005 the EU Commission approved the planned takeover, including the sale of BPH shares to Unicredito. Two months later, on December 20, 2005, the Polish State Treasury instructed Unicredit (the new name of the bank post-merger) to sell its shares in BPH, citing the 10-year prohibition provided for in the Bank Pekao privatization agreement. The State Treasury followed up its demand again on February 1, this time giving Unicredit up to three months to sell its shares in BPH or face revocation of the Bank Pekao privatization. Unicredit objected and the matter is now before the EU Commission.

Who is right?

Not Poland. Upon joining the EU on May 1, 2004 Poland, along with each of the nine other new member states, ceded control over cross-border mergers and acquisitions to the EU. Specifically, article 21 (3) of Council Regulation 139/2004, commonly known as the Merger Regulation, grants exclusive competence to the EU Commission to make determinations regarding cross-border mergers and acquisitions, declaring that "no Member State shall apply its national legislation on competition to any concentration [merger] that has a Community dimension."

Whereas the 10-year restriction period imposed on Unicredito may have been legal and enforceable at the time of Bank Pekao's privatization in 1999, such a restriction is no longer valid or enforceable under EU regulations. In particular, the 10-year restriction violates article 56(1) of the Treaty Establishing the European Community, by which each member state agrees not to impose any restrictions on the free movement of capital.

What next?

In my opinion, Unicredit may ignore the order issued by the Polish State Treasury to sell its shares in BPH without fear of losing control of Bank Pekao. The 10-year non-competition clause included in Bank Pekao's privatization agreement is now null and void. The EU Commission, not the Polish State Treasury, has exclusive jurisdiction to regulate cross-border mergers and acquisitions.

The Polish government, for its part, has until March 23 to respond to the EU Commission's preliminary findings that Poland has infringed the exclusive jurisdiction of the EU to issue rulings on cross-border mergers and acquisitions. Following this deadline, the EU Commission will issue its final decision, which in my opinion will be in favor of Unicredit, thereby giving Unicredit the green light to complete its acquisition of BPH SA's shares. In addition, the Commission has initiated separate infringement proceedings against Poland for violating the Internal Market rules provided for in the Treaty Establishing the European Community.

Paul Fogo is a senior attorney with Miller, Canfield, W. Babicki & Partners.