The European Court of First Instance’s decision to overturn a European Commission merger approval creates a dangerous precedent for future mergers and acquisitions, leading lawyers warned today.

Johan Ysewyn, competition partner at Linklaters in Brussels, said: "The decision throws the Sony BMG merger into major uncertainty. The businesses can continue operating as a merged entity but now face the prospect of being forced to de-merge at the end of the European Commission’s new investigation."

Lawyers said the Commission, wary of being criticised again, is likely to be much stricter in its second investigation into the merger, which will probably take at least four months. The EC has the power to change its original decision and block the merger, forcing the two companies to unwind.

"This is a very unsatisfactory and dangerous situation for the management, employees and shareholders of both companies," Mr Ysewyn said.

Today’s decision is the first time the Court of First Instance has overturned an earlier EC approval and the move raises wider issues for the European mergers and acquisitions industry, which is enjoying a three-year boom.

Companies rely on getting Commission clearance to rubberstamp proposed mergers before pressing ahead with their plans. Lawyers said such approval has previously been seen as a solid, if not watertight, guarantee against future competition issues.

"What will happen if large and complicated deals on the scale of Vodafone/Mannessman and GlaxoWellcome/Smithkline Beecham get blocked on a second investigation several years after having been approved by the EC? A u-turn like that would be disastrous for the merged company," Mr Ysewyn said.

Lawyers cautioned that it was too early to say if today’s decision would dampen chief executives’ appetite for future deals, pointing out that the EC is still free to clear the merger following its second investigation.

But Martin Ballantyne, a competition lawyer at Macfarlanes, said it was a further blow to the EC’s credibility to regulate European mergers and acquisitions.

"The decision is a blow for the European Commission, as it calls into question once again its analysis relating to whether a merger would give rise to a position of collective dominance," he said.

"The Commission's analysis on this point was criticised by the Court of First Instance in relation to its decision to block the proposed merger of Airtours and First Choice, two holiday companies, and so today's ruling is particularly significant in that once again, the Commission's internal investigative procedure has been found to be flawed."

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