In a judgment of 28 July, the UK's Competition Appeal Tribunal ("CAT") confirmed the jurisdiction of the Office of Fair Trading ("OFT") to investigate Ryanair's acquisition of a minority stake in Aer Lingus under UK merger control law. Despite the European Commission ("EC") issuing the original decision to prohibit Ryanair's hostile takeover attempt over four years ago, the CAT concluded that the ensuing European appeals against the EC's decision suspended the usual four month limitation period for an OFT investigation.
Background – Ryanair's attempted acquisition of Aer Lingus
Ryanair is an Irish low-fare airline which operates point to point scheduled air services on over 400 European routes. The company began to acquire shares in Aer Lingus, the Irish national airline carrier, in the Autumn of 2006, following the Irish government's decision to privatise the airline. By October 2006; Ryanair had acquired a 19.16% stake in Aer Lingus and soon after, launched a full public bid, notifying the proposed acquisition to the EC under the European Union Merger Regulation ("EUMR"). Aer Lingus adopted a hostile attitude towards this bid. Under Article 21(3) of the EUMR, mergers that are notifiable to the EC cannot also be subject to the national merger regimes of EU member states, except in exceptional cases such as to ensure public security or media plurality.
On 27 June 2007, the EC issued a decision prohibiting Ryanair's planned acquisition of Aer Lingus (“Prohibition Decision”), on the grounds that it would significantly impede effective competition by creating a dominant position on a number of routes between Ireland and the UK, as well as other European countries. Ryanair challenged that decision before the General Court of the EU.
In July 2007, Aer Lingus requested that the EC require Ryanair to divest its existing shareholding, pursuant to the Prohibition Decision. (Over the course of the public bid and the EC investigation, Ryanair had increased its stake to 29.82%, only a fraction below the 30% threshold at which a mandatory offer is triggered under the UK Takeover Code.) The EC adopted a decision on 11 August 2007 stating that, since it is only empowered by the EUMR to review the acquisition of control over a company, it did not have the power to order Ryanair to divest a minority, non-controlling, stake in a company ("Divestment Decision"). Aer Lingus appealed this decision to the General Court.
On 6 July 2010, the General Court dismissed both Ryanair's and Aer Lingus' appeals and upheld both the EC's decisions. The General Court also confirmed that, since the acquisition of a non-controlling minority stake in Aer Lingus was outside the scope of EU merger control, the UK was free to apply its own merger control rules to this acquisition. The deadline for an appeal of the General Court's judgments to the European Court of Justice expired on 17 September 2010.
The OFT process
In July 2007, following the Prohibition Decision, Aer Lingus asked the OFT (as well as the EC and other national authorities) to investigate Ryanair's acquisition of a minority stake under national law. The OFT initially refused, noting the effect of Article 21(3) EUMR and the likelihood of appeals against the Commission's Prohibition and Divestment Decisions.
Following the end of the European appeals process, the OFT wrote to Ryanair on 30 September 2010 asking it for information to enable the OFT to undertake a preliminary merger investigation of Ryanair's acquisition of its minority stake in Aer Lingus under the Enterprise Act 2002 ("EA02"). On 29 October 2010, the OFT publicly announced that it had commenced an investigation of the transaction.
On 7 January 2011, Ryanair lodged an application with the CAT to review the OFT's decision to investigate the acquisition, arguing that the OFT was time-barred from re-opening the issue. The key point is that the OFT (which undertakes first phase merger reviews) has only four months to decide whether to refer a merger to the Competition Commission for an in-depth investigation. In normal circumstances, this four month period runs from the time that a transaction is completed, or made public, whichever is later. Although section 122 EA02 makes it clear that this four month period is suspended in situations where the EUMR applies, there was a difference in view between the OFT and Ryanair as to when the four month period started running in this case. Ryanair argued that the period started running immediately after the EC's Prohibition Decision on 27 June 2007, in which case the four month period had expired well before the OFT's information request of 30 September 2010. The OFT, in contrast, argued that the four month period started running only on 17 September 2010, when the deadline for appeals against the General Court's judgments expired.
The CAT’s Judgment
In its judgment of 28 July 2011, the CAT upheld the OFT's jurisdiction to investigate Ryanair's acquisition of a minority stake in Aer Lingus almost five years before. The CAT ruled that, if Ryanair's argument were accepted, the OFT would have had to open its investigation in July 2007. This would have created a real risk of conflict between any OFT decision on the transaction and the ultimate outcome of the European appeals process, which would have been contrary to the UK's duty of sincere cooperation under Article 10 of the EC Treaty (now Article 4 of the Treaty on European Union). Launching an investigation while the appeals were pending before the European courts would also have compromised the 'one-stop shop' principle enshrined in Article 21 EUMR. As a result, the CAT ruled that the OFT became free to investigate the acquisition only once the European appeals process had run its course, at which point the four month period for it to reach a reference decision started to run.
Relevance of the decision
The OFT has responded to the CAT's judgment by re-opening its investigation. It issued a public invitation to comment on 1 September 2011, with a deadline for comments of 14 September, and has indicated that it will seek to make a decision on the transaction by 26 October. In the meantime, Ryanair has announced its intention to appeal the CAT's ruling.
It remains to be seen how the OFT will approach its analysis in this case. It is notable that the acquisition of a minority stake as low as 18% has been reviewed under UK merger control. As a result, it is likely that the OFT will decide that a merger has taken place in this case. Given the underlying competition issues that led to the Prohibition Decision back in 2007, it also seems likely that, notwithstanding the long period of time that has elapsed since the shares were acquired, the OFT will raise objections to the transaction and, unless remedies are offered by Ryanair, go on to refer it to the CC for an in-depth investigation.