United Kingdom Blocks Merger Following US Clearance
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In a move affirming its aggressive enforcement agenda, the UK Competition and Markets Authority (CMA) yesterday blocked the proposed merger of two US companies, Sabre Corporation and Farelogix Inc, which had been cleared by a US District Court earlier this week. The CMA’s action signals its increasingly interventionist approach in international mergers—including those with limited UK nexus—and its post-Brexit ambitions.
In November 2018, Sabre and Farelogix entered into an agreement for Sabre to acquire Farelogix for $360 million. Sabre is the US’s largest global distribution system, an intermediary between airlines and travel agents that provides flight, price, and reservation information. Farelogix is a US technology and software provider that supplies solutions for airlines to facilitate the sale of airline tickets and other products. The parties filed the merger for antitrust review in the US and UK.
After an extended investigation, the US Department of Justice sued to block the merger in August 2019, alleging it would harm competition in the US booking services market. The trial took place over several weeks this winter, and earlier this week US District Judge Leonard Stark issued an opinion greenlighting the merger to proceed. The court found the DOJ failed to meet its burden in properly defining a relevant market to assess the effects of the merger on competition: Sabre, a two-sided platform facilitating transactions between airlines and travel agencies, does not compete with Farelogix, which interacts only with airlines (one-sided). The court held that the DOJ’s proposed market definition was ‘at odds with the “commercial realities of the industry,”’ marking the second occasion this year that the US government failed to block a merger on the basis of an aggressive position on market definition. Even assuming the DOJ had established a relevant market, the court concluded the agency failed to produce evidence of competitive harm. The DOJ is considering whether to appeal the court’s decision.
The companies’ victory was short-lived. Two days later, the CMA blocked the proposed merger, finding it would harm competition in two markets, the supply of merchandising and distribution solutions worldwide. While the CMA acknowledged the one- and two-sided differences in the parties’ businesses, the CMA disagreed that the products are therefore in separate markets, instead determining that the parties do compete and ultimately concluding that the merger would harm competition.
That the CMA reviewed the transaction at all demonstrates its expansive approach in applying its jurisdictional test. Under the UK rules, for the CMA to have jurisdiction, Farelogix must have generated £70 million revenue in the UK, or the parties combined must have a 25% ‘share of supply’ for a given product or service in the UK. Since Farelogix generates no revenue from UK customers, the CMA relied on the share of supply test. The agency applied a shifting approach, successively applying and abandoning a variety of different bases in an attempt to establish jurisdiction, and in doing so drawing strong criticism from the parties, which accused the CMA of gerrymandering jurisdiction. Sabre and Farelogix may appeal the CMA’s decision to the UK’s Competition Appeal Tribunal, including on jurisdiction.
The Sabre/Farelogix situation is a cautionary tale for companies, even those with limited UK nexus. The CMA is willing both to stretch its jurisdictional test and to chart a divergent path in reviewing a deal’s substantive merits. Merging parties should anticipate the UK reaching for international mergers, particularly after the Brexit transition ends on December 31.
This post comes to us from a current awareness memorandum by Wachtell, Lipton, Rosen & Katz. The authors are Nelson O. Fitts and Katharine R. Haigh.
Nelson O. Fitts is a partner in the firm's antitrust practice, based in its New York office.
Katharine R. Haigh is an associate in the firm's antitrust practice, based in its New York office.