Sabre-Farelogix UK merger probe raises jurisdiction question mark

The UK review of Sabre’s merger with Farelogix has raised questions about whether the country’s antitrust regulator has jurisdiction for an in-depth probe of the deal, MLex has learned.

In response to the Competition and Markets Authority’s early findings, the airline technology companies plan to argue that the footprint of the transaction in the UK is vanishingly small, MLex understands.

Sabre and smaller rival Farelogix saw their merger referred for an in-depth probe on Monday after the CMA rejected concessions offered by the companies to address its concerns that the deal could eliminate a competitive threat.

But Sabre is expected to argue that the transaction doesn’t merit further review, MLex understands, given its small UK presence.

Jurisdiction

For that argument to hold weight, Sabre will have to act fast.

​Under the rules of the UK’s specialist antitrust court, the Competition Appeal Tribunal, merging companies have four weeks to lodge an appeal after seeing the findings of the CMA’s initial review. In Sabre’s case, that’s the end of next week: four weeks from Aug. 16, when the regulator announced its phase I decision.

While companies can challenge jurisdiction after the phase II process is completed, they can’t do so during a phase II probe if the deadline for appealing the phase I decision has passed.

The CMA is set to publish its full-text phase I decision shortly, which will outline how it established jurisdiction in this case. The companies are expected to say the UK link is tenuous, MLex understands, though it’s not yet known whether they will mount a formal jurisdiction challenge.

The CMA typically has jurisdiction to examine a merger either when the UK revenue of the acquired enterprise exceeds 70 million pounds ($82 million); or when the two enterprises supply or acquire at least 25 percent of the same goods or services supplied in the UK and the merger increases that share of supply — also known as the “share of supply test.”

Sabre and Farelogix don’t qualify for the revenue test, which means the CMA established jurisdiction via share of supply.

The share of supply test is somewhat controversial, given that it’s not an economic “market share test” and can be applied quite flexibly. It has meant that the CMA and its predecessor, the Office of Fair Trading, have been able to review significant mergers involving targets with limited UK revenues, such as Facebook’s acquisition of Instagram and — most recently, Thermo Fisher’s abandoned purchase of Gatan.

Evolving market

Should Sabre and Farelogix decide against a jurisdiction challenge, or lose one, they face having to convince the inquiry panel that their $360 million merger delivers on the benefits and is not an example of a “killer acquisition.”

MLex understands the companies see a phase II probe as an opportunity to demonstrate this, and could point to the merger’s benefits for both trade and travel customers and the evolving travel technology market.

Sabre might argue that the airline tech sector has evolved significantly in recent years, and has become more competitive by the day. A number of airlines have begun developing their own platforms with “new distribution capability,” a newer type of technology used by Farelogix that allows customers to provide additional information beyond just price and timing, such as pictures, video or dynamic pricing options.

Sabre is the US’s largest global distribution system, or GDS — an intermediary between airlines and travel agents that provides flight, seat-price and reservation information.

Defenders of the deal would dispute the idea that it fits the description of a killer acquisition, given that the companies are not direct competitors. Sabre acts as an intermediary with airlines and travel agents, while Farelogix works directly with airlines to provide the technology that powers their websites, mobile apps, direct portal and offerings to aggregator companies.

At phase II the merger will be probed by an independent group which is not bound by the CMA’s early findings. The deadline for the CMA's phase II decision is Feb. 16, 2020.

Meanwhile the US Department of Justice, which is also probing the deal, last month filed a lawsuit to block the merger, after the companies said they would push ahead with closing the transaction. If the companies bring a court challenge in the UK they will be fighting on two fronts.