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Never say never

When circumstances change, regulators can reverse previous decisions on merger rulings, encouraging companies to reconsider transactions that they initially believed were too challenging to pursue.

Many potential mergers and acquisitions have been shot down or simply abandoned on competition law grounds. Sometimes, when the initial merger control analysis indicates that there may be substantial trouble on the horizon, the prospective parties quickly drop the idea of the transaction because they are pessimistic about an eventual merger clearance or are simply not willing to invest significant resources and time into a fight with the competition authorities.

Other times, the parties may initially proceed with the transaction but later become unwilling to accept the prolonged timing that comes with a long and demanding pre-notification process. Or they may abandon a transaction after they decide that the potential remedies sought by the competition authorities are simply too onerous for or threaten to reduce the value of the deal below an acceptable level.

But our involvement in the successful Aegean/Olympic II showed that any initial negative experiences should not preclude the parties from trying again.

If the conditions are right, the authorities can change their position when assessing the impact of a transaction

When the circumstances are right, antitrust authorities are willing to reconsider their previous theories or conclusions. Companies and their legal counsel should therefore also be willing to rerun their analysis on transactions they had previously ruled out because of competition risks.

On rare occasions, antitrust authorities prohibit a transaction between two companies. This happened in January 2011, when the European Commission blocked a merger between Aegean Airlines and Olympic Air, Greece's two biggest airlines, on the grounds that the merger "would have resulted in a quasi-monopoly on the Greek air transport market"

Fast-forward to October 2013, and the Commission unconditionally approved a similar transaction, allowing Olympic to become part of Aegean Airlines, after concluding that the "merger caused no harm to competition" Less than two years after the Commission took the prohibition decision in Olympic/Aegean I, the situation on the Greek aviation market in general, and within the two companies in particular, had changed and the Commission saw the transaction in a different light. This was the first time the Commission later cleared a merger that it had previously prohibited, illustrating how a deal once considered incompatible with the Merger Regulation might become possible not so far in the future.

decline in domestic air traffic to and from Athens in 2013

In 2011, the Commission had expected that Greek GDP would "become positive again in 2012" Instead, output fell by 73 percent in 2012 and continued to fall in 2013. The Commission's assessment of the robustness of the demand in the aviation segment was also off the mark.

In blocking the deal in 2011, the Commission expected that the number of domestic flights in Greece would grow on average by 2.3 percent. In reality, domestic traffic to and from Athens declined by 4.6 percent in 2013, and total traffic at Athens International declined by 3.2 percent. As a consequence, the two airlines' respective turnovers dropped considerably in this short period.

decline in total traffic at Athens International Airport in 2013

By 2013, the failure of Olympic had become unavoidable. The Commission had no other option but to take this into account under the so-called "failing firm defence" analysis, and approved the transaction. Only two years earlier, this scenario had been rejected without much hesitation.

Aegean/Olympic II signals that, if the conditions are right, the authorities can change their position when assessing the impact of a transaction. However, for this to happen, there must have been changes in the overall economy, or in the specific economic sector that result in a change in the market position of the companies involved.

Examples of the circumstances that might prompt a rethink by a competition authority could include:

• a significant decrease in the parties' market shares (maybe due to a new entrant or one party's decreased ability to compete)
• seriously reduced financial health of the parties (similar to what we observed in Aegean/ Olympic II)
• the removal of significant barriers to entry (such as regulatory procedures)
• significant changes in the number of customers and to market behaviour, and many others

A combination of these circumstances pointing in the same direction could make the case even more compelling.

The fact that an authority previously held a negative view does not stand in the way of a fresh consideration in light of new circumstances. The second time around, conclusions might be different and a deal might be possible. We would urge companies to reconsider abandoned transactions when the antitrust assessment was made sufficiently long ago for the market circumstances to have changed.


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