Sabre Taxiing For Another Run At Airline Booking Biz?
Sabre and Farelogixcalled off their planned $360 million merger on May 1, citing the U.K. Competition and Markets Authority's decision to block the tie-up. The deal came apart even though the companies had fended off a challenge from the U.S. Department of Justice in a Delaware federal court.
Now, Sabre is appealing the CMA's decision, arguing that the agency lacks jurisdiction to even review the deal because Farelogix doesn't do enough business in the U.K. It's also fighting a bid by the DOJ at the Third Circuit to get the ruling in the U.S. case vacated in light of the transaction's being dropped.
Stephen Calkins, a professor at Wayne State University Law School, told Law360 that if Sabre succeeds on both fronts, it could set the company up for another shot at Farelogix.
"If they can get the CMA decision reversed and preserve their U.S. win, that would put them in a good position to make another try at accomplishing the merger at some later date," Calkins said.
Sabres rattling
In August last year, with a deadline looming for the DOJ, Sabre all but dared the agency to challenge the deal, saying that it intended to close the transaction within a week if a lawsuit wasn't filed by then. The Justice Department obliged, filing suit in Delaware on Aug. 20, contending that the deal would eliminate direct competition between Sabre and Farelogix to provide certain booking services to airlines.
Alec Burnside, a partner in Dechert LLP's Brussels office, told Law360 there was "similar bad blood in London" between Sabre and the competition agency. There, Sabre has consistently contended that the CMA lacks jurisdiction to review the deal because Farelogix generates no revenue in the U.K.
But British enforcers found enough of a connection, partly through a business relationship with British Airways, saying the move would increase the combined companies' "share of supply" of certain services in the country by more than the 25% threshold required for the agency to review deals. What complicates the issue is that enforcers in the U.K. have a lot of leeway in determining what products or services constitute this supply and how the share is calculated.
"The CMA went quite far in finding a 25% category and asserting jurisdiction," Burnside said. "The parties hated it, and they've kept on hating it ever since."
Merger notifications are voluntary in the U.K., and Burnside said the CMA unit tasked with finding transactions to pursue had been "hyper-active" of late. This may be partly because of staff increases in preparation for the U.K.'s exit from the European Union and partly because of a proactive new chairman, he said.
Once the Brexit transition period ends, the agency will also take on a greater role in global merger enforcement, since it will be handling many U.K. deals that the European Commission currently reviews.
"The CMA is concerned that it does not end up as a follower in deals that need multiple international clearances, to the point even that it's thinking about making filing mandatory in certain cases, so that it doesn't have to pursue parties to bring their cases in," Burnside said.
Under appeal
Following an eight-day trial in late January and early February, U.S. District Judge Leonard P. Stark rejected the DOJ's challenge of the tie-up on April 7, finding that the agency had failed to show Sabre and Farelogix compete directly enough for the deal to hurt competition.
Judge Stark's opinion relied heavily on the Supreme Court's 2018 decision in Ohio v. American Express Co., a landmark ruling that spelled out how enforcers should treat platforms that engage in two-sided transactions, in which a company connects two distinct markets of customers. AmEx competes in one market for consumers that use its cards and another for merchants that accept them.
The judge found that Sabre operates in a two-sided market by offering services to both airlines and ticket agents, while Farelogix provides services only to airlines. Under AmEx, Judge Stark said, the companies are not competitors because Farelogix does not operate in the ticket agent side of the market.
The DOJ filed a notice of appeal with the district court a day after the decision came down, saying that it wanted to protect its appellate rights and give the U.S. solicitor general time to determine if an appeal should be authorized. The next day, on April 9, the CMA issued its decision to block the transaction.
Calkins said the timing was odd, especially considering that the DOJ notice came long before the agency's time to file an appeal had run and before authorization from the solicitor general.
"What was gained by rushing, when it wasn't really an appeal, let alone a request for an injunction pending appeal?" Calkins said.
After the companies terminated the deal, DOJ filed a motion and suggestion of mootness with the Third Circuit asking the court to vacate Judge Stark's decision. The agency took issue with the judge's handling of the AmEx decision, arguing that it could have "an outsized effect on cases involving competition in the digital economy, where it is not uncommon for multi-sided platforms to face competition from one-sided rivals."
There have been relatively few court decisions since AmEx applying two-sided market principles, and James A. Fishkin, a partner in Dechert's D.C. office, said DOJ sees the Sabre decision as a potential problem for future enforcement.
"The district court decision held, as a matter of law following the AmEx decision, that Sabre and Farelogix are not competitors in the same relevant market," Fishkin said. "DOJ does not want this decision to have precedential value for future cases."
If the ruling against the DOJ is wiped out, Sabre and Farelogix also would not be able to rely on it as much were the DOJ to try to block a second rendition of the deal. Fishkin said there would likely be some discussion of Judge Stark's ruling in a second case even if it is vacated, but that it would have to be cited as vacated with no precedential value.
"It removes the precedential value of the decision, but it remains that the DOJ did not obtain an injunction blocking the merger," Fishkin said.
Tension mounts
Sabre told the Third Circuit in a May 22 filing that it agreed with the DOJ that the appeal is moot, but contended that it would be inappropriate to vacate the lower court's decision. In addition to defending the ruling and attacking the DOJ's prosecution of "meritless litigation," Sabre also accused the Justice Department of improperly coordinating with the CMA.
The company said the department "pressured" it into signing off on an agreement allowing the two agencies to share information, then coordinated the CMA's block of the deal to ensure that the DOJ's notice of appeal was filed before Sabre and Farelogix terminated the transaction.
"Sabre and Farelogix are alleging that the DOJ influenced the CMA decision to block the merger after the DOJ loss," Fishkin said. "They do not want DOJ to be rewarded for what they allege is gamesmanship."
The DOJ called those claims "false and nonsensical" and said cooperation between enforcers is commonplace. Fishkin said that it is generally in the best interest of merging parties to allow the agencies to share information and that the burden is greater when they must respond to separate information requests individually.
Burnside said that there was typically "good liaison" between the agencies and that cooperation between them can be especially important for merging parties when potential concessions or remedies are being considered so that there is an opportunity to push for consistent outcomes.
He also said that when agencies ask for permission to share information, companies don't generally want to say no.
"It signals that you don't trust them, that you want to be able to use inconsistent facts or develop inconsistent arguments," Burnside "It's the kind of question where the only answer is, 'Just tell me where I have to sign.'"
