Takeover bid thwarted by anti-trust rules

In a case which will send shock waves through the mergers and acquisitions market, an airline which repeatedly mounted hostile takeover bids against a rival carrier came up against the barrier of European anti-trust rules and has been ordered to divest itself of most of its minority shareholding in its rival.

Airline A had acquired a shareholding of just under 30 per cent in airline B and had three times attempted to complete the takeover. The first attempt had been blocked by the European Commission on grounds that merger of the two businesses would significantly impede competition in the common market.

Company A’s appeal against that decision to the European Court of Justice failed and company B launched domestic proceedings aimed at forcing its rival to part with its shareholding. Company B’s arguments prevailed and the Competition Appeal Tribunal (CAT) ultimately directed company A to give up all but 5 per cent of its shares.

In dismissing company A’s challenge to that ruling, the Court of Appeal upheld the CAT’s findings that its shareholding in company B would give it substantial influence in the latter’s management. It would, amongst other things, be in a position to block special resolutions at general meetings. Company B could also be prevented from merging with, or entering into a joint enterprise with, another airline.

The Court also rejected company A’s plea that forcing it to reduce its shareholding so dramatically was disproportionate, in that any future bid it might make to acquire company B would necessarily become more difficult and unnecessarily expensive.

Contact:Robert Goddard