On 21 May in Sabre v Competition and Markets Authority (“CMA”), the Competition Appeal Tribunal (“CAT”) upheld the CMA’s claim to jurisdiction over Sabre’s acquisition of Farelogix. The merger had no material link to the UK – Farelogix had no UK revenue and no material UK activities or assets. However, the CAT found the CMA was entitled to take jurisdiction based on Farelogix’s potential UK revenues. Revenues so small that Farelogix did not in practice collect them.
The CMA’s intervention was enough to kill the deal, despite the collapse of the US’s authorities’ challenge and the absence of any EU review (the deal did not meet EU notification thresholds). The CAT judgment underscores the CMA’s ability to play an expansive role in international merger control now that, post-Brexit, it is outside the EU’s ‘one-stop-shop’ regime. It also underscores the difficult judgments that non-UK firms in particular may face in deciding whether to make voluntary UK filings for mergers with few UK links. Sabre/Farelogix was just one of a number of mergers – including Roche/Spark, Tobii/Smartbox, Fisher Scientific/Roper and Illumina/PacBio – that the CMA has recently reviewed despite a limited UK nexus.
Sabre and Farelogix are both US-based providers of IT solutions to the air travel industry. Sabre operates a global distribution system (“GDS”) allowing airlines to provide information on fares, availability, etc. to travel agents. Sabre’s GDS is one of three. The others are operated by Amadeus and Travelport. Farelogix does not have a GDS. However, it does offer IT solutions that help airlines to provide information to travel agents outside the scope of a GDS (so-called GDS by-pass). Compared to Sabre and the other GDS providers, Farelogix is barely even a minnow. In 2018, Farelogix’s global turnover was just over £30 million. Sabre’s global turnover in 2018 was around £3 billion. On 14 November 2018, Sabre agreed to acquire Farelogix for approximately US $360 million.
Farelogix had no UK presence and no UK revenues. Its only link to the UK was a contract under which British Airways (“BA”) supplied data to Farelogix in the context of BA’s interlining agreement with American Airlines (“AA”). Under the interlining agreement, AA marketed tickets covering flight segments provided by BA. Since AA used Farelogix to market its services, it had asked BA to enter into an agreement with Farelogix. The number of tickets involved was extremely small – 62 in 2018 – and Farelogix was, in practice, paid by AA rather than BA in relation to those sales.
Despite the almost complete absence of a UK link, the CMA’s mergers intelligence function decided that Sabre’s acquisition of Farelogix warranted investigation. As a result, the parties notified the deal to the CMA on 19 June 2019. Almost a year later, on 9 April 2020, the CMA prohibited the acquisition on the basis that it was likely to give rise to a substantial lessening of competition in two worldwide markets: the supply of merchandising solutions to airlines and the supply of distribution solutions to airlines. The focus of the CMA’s concerns was the potential impact of the deal on innovation (see our previous articles here and here).
In the US on 8 April 2020, the day before the CMA decision, a district court judge had rejected a bid by the US Department of Justice to block the deal. Despite this, the CMA’s intervention was enough to frustrate the deal, which the parties abandoned in May 2020.
The CAT Judgment
Although it had abandoned the acquisition, Sabre appealed the CMA prohibition to the CAT. The CAT’s 21 May judgment is its rejection of that appeal. The core elements of that rejection are:
- The CMA decision to take jurisdiction was subject to only limited review. The Enterprise Act 2002 granted the CMA significant discretion over the interpretation of its own jurisdiction. As there was no allegation that the CMA had misinterpreted the Enterprise Act, the only question for the CAT was whether the CMA had acted irrationally in claiming jurisdiction.
- Farelogix supplied services to BA in the UK. The data link that Farelogix supplied to BA constituted a service that allowed BA to sell airline services (technically, AA was acting as an agent for BA under the interlining arrangement, so the tickets were sold by BA). As BA’s internal documents showed, BA management had taken a conscious decision to procure Farelogix’s services. That procurement decision was taken in the UK. BA was under no obligation to do so; other airlines with interlining agreements with AA had decided not to contract with Farelogix.
- The CMA was entitled to rely on theoretical UK revenues. Farelogix received no fees from BA, but was potentially entitled to do so. Farelogix chose not to collect fees as a matter of administrative convenience (the cost of collecting them might even have exceeded their value). The CMA had relied on the value of those potential fees to calculate a share of supply for Farelogix in the UK. Although the CAT found this “a difficult issue to resolve” it concluded a contractual right to receive payment could be sufficient. The CMA’s approach was not irrational.
- Any increment in UK share of supply is sufficient for jurisdiction – no de minimis threshold applies. The share of supply test requires both a post-merger UK share of supply of at least 25% and an increase in that share. In this case, Sabre had a pre-merger supply of at least 25%. While Farelogix’s share was less than 1% – indeed Sabre argued that the increment was less than 0.001% – the CAT held that there was no de minimis threshold. Any increment, however small, would suffice for jurisdiction.
The CAT judgment provides strong support for the CMA’s current interventionist stance in global mergers. This matters. Brexit releases the CMA from the constraints of the ‘one-stop-shop’ of EU merger control, which previously excluded many larger international mergers from the scope of UK merger control. Whilst cases like Roche/Spark, Tobii/Smartbox, Fisher Scientific/Roper and Illumina/PacBio – as well as Sabre/Farelogix – all fell below EUMR thresholds, they do reveal an intent by the CMA to play a high profile role in global merger control. It remains to be seen how this will play out in larger transactions where the CMA is reviewing a transaction in parallel to the European Commission, but such cases are likely to have to be managed carefully between the parties. What is clear is that any changes to the nature of the share of supply test would require primary legislation – in the meantime, this judgment reinforces the CMA’s already considerable discretion in interpreting the Enterprise Act.