UK: CAT Rejects Ryanair Appeal Over Competition Commission Decision To Continue Investigation Into Acquisition Of Aer Lingus Minority Stake; EU Probe Moves To Phase II

On 8 August 2012, the UK's Competition Appeal Tribunal ("CAT") handed down a judgment in relation to a challenge by Irish airline Ryanair against the decision of the Competition Commission ("CC") to continue its investigation into Ryanair's completed acquisition of a minority shareholding in rival Aer Lingus, notwithstanding the European Commission's parallel examination of a proposed public bid by Ryanair to acquire the entirety of Aer Lingus' share capital (the "Public Bid").

The Office of Fair Trading ("OFT") had previously decided on 15 June 2012 to refer to the CC the completed acquisition by Ryanair of 29.82% of the share capital of Aer Lingus (the "Minority Stake") under Section 22 of the Enterprise Act 2002, after finding that the acquisition of the Minority Stake would give Ryanair "material influence" over Aer Lingus under UK merger control law. The acquisition of the Minority Stake formed part of Ryanair's previous unsuccessful bid to acquire sole control over Aer Lingus, which was ultimately blocked by the European Commission in June 2007 under the EU Merger Regulation. Aer Lingus subsequently brought an appeal before the EU General Court against the Commission's refusal to order Ryanair to divest the Minority Stake as part of its decision prohibiting Ryanair's acquisition of sole control. However, the General Court ruled in July 2010 that Ryanair's acquisition of the Minority Stake in Aer Lingus did not give rise to a change in control within the meaning of the EU Merger Regulation and that, as a result, the European Commission did not have jurisdiction to review the transaction (see VBB on Competition Law, Volume 2010, No. 7, available at www.vbb.com). On 19 June 2012, Ryanair again announced its intention to acquire the entirety of Aer Lingus' share capital through its Public Bid. As this transaction fell within the scope of EU Merger Regulation 139/2004 (the "EU Merger Regulation"), it was notified to the European Commission, and Ryanair subsequently sought from the CC a stay of its investigation into the previous acquisition of the Minority Stake.

On 10 July 2012, the CC informed Ryanair and Aer Lingus of its decision to continue the investigation into the Minority Stake despite the notification of the Public Bid to the European Commission. By application of 13 July 2012, Ryanair appealed to the CAT to quash or stay the CC's decision to continue the investigation.

Ryanair argued that the CC had erred in law in deciding to continue its investigation of the Minority Stake despite the European Commission's overlapping and parallel investigation of the Public Bid. According to Ryanair, the Public Bid gave rise to a concentration with a Community dimension which triggered the exclusive jurisdiction of the European Commission under Article 21 of the EU Merger Regulation. In any case, according to Ryanair, the announcement of the Public Bid triggered a duty of sincere cooperation under Article 4(3) of the Treaty on European Union (TEU) which precluded the CC from taking any further steps in the investigation. The CAT's judgment therefore focused on the extent of the European Commission's exclusive jurisdiction and the UK authorities' duty of cooperation.

With regards to the Public Bid, the CAT accepted that it qualified as a concentration with a Community dimension which triggered the European Commission's exclusive jurisdiction. However, in the CAT's view, the key question was the extent of this exclusive jurisdiction. The CAT first noted that the UK and EU jurisdictional frameworks differed slightly in that the UK applied a so-called "material influence" test while the EU applied a more restrictive "decisive influence" test. All parties, including Ryanair, accepted nonetheless that Ryanair's acquisition of the Minority Stake as such did not have a Community dimension.

The CAT took the view that the EU Merger Regulation conferred exclusivity only to the extent that the European Commission had jurisdiction (i.e., where there was a Community dimension). In the present case, the European Commission's jurisdiction extended only to the shares that were the subject of the Public Bid, and not over the Minority Stake. In the CAT's view, the UK authorities' jurisdiction was unaffected by the EU Merger Regulation in that respect.

The CAT also rejected arguments that a genuine "one-stop-shop" could not be achieved if the CC was allowed to continue investigating the Minority Stake – which was inextricably linked to the Public Bid – at the same time as the European Commission. Again, the CAT found that the EU Merger Regulation's "one-stop-shop" principle only applied where the European Commission had exclusive jurisdiction, not in cases not covered by the EU Merger Regulation such as the completed acquisition of the Minority Stake.

As to the duty of sincere cooperation, the CAT examined the previous case law and concluded that the question of what needs to be done to comply with it was dependent on the facts of each case. The CAT found that the duty of sincere cooperation will require the CC to avoid taking any decision as regards Ryanair's acquisition of the Minority Stake that would be inconsistent with the Commission's decision on the Public Bid. In effect, therefore, while the CC is not precluded from continuing its investigation, it appears that it would need to await the Commission's decision before issuing its final decision on the Minority Stake.

As a result, the CAT rejected Ryanair's application for the CC's decision to continue with the investigation to be quashed or stayed. Ryanair reportedly intends to appeal against the CAT's judgment before the English Court of Appeal.

With regard to the European Commission's parallel investigation into the Public Bid, Ryanair declined to offer remedies in phase I in order to address expected competition concerns and, on 29 August 2012, the European Commission launched a fully-fledged phase II investigation into the transaction.

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