In August 2013 the UK Competition Commission ("CC") concluded that Ryanair's 29.82% minority stake gave Ryanair material influence over Aer Lingus and resulted in a substantial lessening of competition ("SLC") within the meaning of the UK Enterprise Act 2002.
The CC ordered Ryanair to divest itself of the majority of its holding, by reducing its stake to no more than a 5% holding. No divestiture trustee has yet been appointed. In due course the CC will consult with Ryanair on the identity and terms of reference for the divestiture trustee.
Competition Appeal Tribunal decision, 7 March 2014
Ryanair appealed to the UK Competition Appeal Tribunal ("CAT") to challenge the lawfulness of the CC's decision on six grounds:
- The CC's decision to require divestiture was contrary to the EU law duty of sincere cooperation as Ryanair's third bid to purchase Aer Lingus is still the subject of an appeal before the European courts.
- In particular, Ryanair argued that, if its shareholding was reduced to 5%, it would more difficult for it to launch a fourth bid for the remainder of the shares. Thus, Ryanair claimed that the CC should not be allowed to impose a remedy which makes it much harder to succeed with a bid which may yet be cleared by the European Commission.
- The CAT held that in the current situation, there are distinct jurisdictions where the European Commission and the CC are looking at different shareholdings and so dismissed this ground.
- Ryanair contended that it was not accorded procedural fairness during the CC's inquiry
- Ryanair said that it was not provided with certain evidence or information, without which it was not able to respond effectively to the allegations or case being made.
- The CAT held that fairness is an evolving concept, and that in the context of enquiries by the CC, procedural fairness does not necessarily require the production of the underlying evidence obtained by it, especially where the information is highly confidential to the parties supplying it.
- Ryanair claimed that the CC erred in law by failing to show a causal link between the alleged material influence and the finding of an SLC.
- Ryanair pointed to how the CC suggested that the mere fact of Ryanair’s shareholding, and Ryanair’s position as an “activist shareholder”, served to deter other airlines from entering into combinations with Aer Lingus.
- The CAT dismissed this claim and held that the SLC test essentially requires an assessment of “the world without the [relevant merger situation] and the world with the [relevant merger situation]” rather than a need to show a connection between each element of the identified relevant merger situation and the SLC.
- Ryanair claimed that the CC's SLC finding was irrational
- Ryanair argued that the CC's finding was based on highly speculative theories of harm, and the evidence did not support a conclusion that the alleged merger situation would result in an SLC
- The CAT went through each of the five mechanisms that the CC had identified and found that the CC’s conclusion was one it was entitled to reach.
- Ryanair claimed that the divestiture remedy and the immediate appointment of a divestiture trustee were disproportionate
- The CAT held that, having identified an SLC and the need for a divestment remedy, it was entirely reasonable for the CC not to await the final result of the EU process. This was reinforced by the CC’s finding that there was no effective remedy which could be maintained in the interim. The CAT held that, so long as Ryanair is given the opportunity for fair market value to be raised through the divestiture remedy, then the fairness requirements are satisfied.
- Ryanair also claimed that the CC did not have territorial jurisdiction to impose requirements on Ryanair
- At the hearing, Ryanair did not develop this ground, but did not abandon the point entirely as the UK Court of Appeal will imminently consider the same legal principles in an appeal being brought by Azko Nobel NV.
Appeal to General Court of European Union
The European Commission rejected Ryanair’s third bid for Aer Lingus on 27 February 2013, but Ryanair’s appeal to the General Court is pending. If the General Court decides in favour of Ryanair, the European Commission may yet ultimately decide that Ryanair may acquire Aer Lingus. A judgment on the appeal to the General Court is unlikely before the end of 2015.
This piece has analysed how the UK Competition Appeal Tribunal rejected Ryanair’s appeal against the Competition Commission’s decision ordering them to divest their 29.82% stake in Aer Lingus. Ryanair had appealed on six detailed grounds but they were emphatically rejected. It’s not quite the end of the road in the UK courts and Ryanair have already signalled that they’ll appeal this latest decision. However, the UK competition authorities have had their approach confirmed and may take this latest judgment as an encouragement to act against minority interests in other contexts going forward.