A proposed Canadian M&A deal – which has just been abandoned because of EU opposition to the deal - gives a glimpse of possible future tensions between the EU and the UK over Brexit.

Air Canada, the largest Canadian airline, planned to acquire Transat, another Canadian airline and tour operator. Air Canada has called off the deal.

Why? The European Commission opposed the deal under the European Union's (EU's) Merger Control Regulation (EUMR).

Irrespective of what the Canadian authorities might have thought of a deal involving Canadian companies which was largely centred on Canada, the European Commission has the power under EUMR to block a deal between parties from anywhere in the world which would, in the European Commission's opinion, significantly impede effective competition (SIEC) in the EU.

Air Canada has announced that it has abandoned its proposed purchase of Transat due to the European Commission's concerns over the deal. The European Commission had been examining the notification for almost a year.

The European Commission believed that there was a risk that competition would be reduced on 33 origin and destination (O&D) city pairs between Canada and the EU (including the wider European Economic Area (EEA) – the EEA includes the EU as well as Iceland, Liechtenstein and Norway). The European Commission saw the two airlines as competing with each other for customers in the EEA (particularly through Air Canada's Rouge brand) and that there would have been insufficient competition remaining if the two airlines merged.

Hence, the deal between two Canadian airlines has been abandoned due to EU competition concerns.

The same thing could happen with two UK companies planning to merge. The UK is now like Canada – a 'third country' for EU law purposes. If a UK business wanted to acquire another UK business or merge with it then, whenever the EU EUMR turnover thresholds are triggered, the particular deal might require approval from the European Commission under the EUMR.

This requirement to get EU approval under the EUMR arises whenever the turnovers (i.e., value of sales) of the participants in the deal exceed the thresholds specified in the EUMR. These thresholds are largely centred on the turnover/sales of the parties globally and in the EU. The companies do not have to be EU incorporated, resident or headquartered.

This type of situation could become a significant flashpoint in the already challenging EU-UK relationship post-Brexit. One could contemplate the negative reaction in No.10, Westminster and in parts of the UK business community if the EU blocked a UK-centred deal.

There could even be a negative reaction if the deal was approved but if the European Commission were to impose harsh conditions which would be unattractive to the parties and the UK.

Despite such concerns, the UK businesses would probably have little option but to accept that the EU has jurisdiction. The parties might appeal the decision of the European Commission to the EU's courts but that case may take many years to hear (as happened recently when the EU's General Court took four years to decide on an appeal of a European Commission prohibition of a Hong Kong company buying a UK subsidiary from its Spanish owner – and while the Court overturned the Commission's prohibition but it was too late for the deal to proceed).

Interestingly, the opposite could also occur were the UK to prohibit a deal between businesses from EU Member States but the reaction may not be as strong.

So this deal between two Canadian airlines could be a bellwether of things to come whereby two UK companies planning to merge could find their way blocked by Brussels despite Brexit occurring.