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After surviving a merger challenge in U.S. court, Texas-based software company Sabre announced last month that it was abandoning its pursuit to acquire Florida-based airline software vendor Farelogix. Sabre’s decision to throw in the towel was likely driven less by the fact that the travel industry is reeling from the global COVID-19 pandemic and more by the fact that the United Kingdom’s competition authority decided to step in and block the transaction.
The proposed acquisition had been labeled a “killer-acquisition” — one of the hottest topics in antitrust. Killer-acquisitions occur when a larger, more well-established player in a market targets a smaller, emerging company. Opponents of killer acquisitions argue that nascent competitors are being bought out before they can become a competitive threat. The fault with that logic is that it relies on prognosticating about future market structures, theorizing that these growing companies would undoubtedly mature into real competitors. Typically, antitrust analysis dismisses competition concerns that may arise years after the transaction is completed because it is near impossible to accurately forecast future market dynamics.
Unfortunately, today, too many leading antitrust jurisdictions around the world are actively contemplating making changes to their antitrust laws that would stray from reviewing mergers based on sound economics, instead favoring more subjective legal tests that allow antitrust enforcers to venture into the realm of fortune telling. Germany, France, the European Union, Australia, and Japan are all actively looking at changing their merger laws to include “killer acquisition” theories of harm. Another half-dozen countries, including the United States, have similar conversations underway.
Beyond the obvious problem of being unable to accurately predict the future, few have thought about the implications of multiple governments seeking to review cross-border acquisitions involving smaller companies. Typically, a jurisdiction needs to establish that the transaction has a material impact on their domestic market and their consumers. In the case of Sabre-Farelogix, the UK asserted jurisdiction over this transaction because American Airlines is a customer of Farelogix, which in turn is a code share partner with British Airways. For the UK it argued that this flow through relationship was enough to assert authority over the transaction.
However, international norms have long recommended jurisdictions only examine those “transactions that have a material nexus to the reviewing jurisdiction.” The UK’s argument that it needs to review and block this merger is highly questionable. A mature jurisdiction, like the UK, should be a role model, but instead it has chosen to explain away the very international norms it once helped establish.
It’s one thing for an antitrust agency to review its own nascent competitors, but if any jurisdiction can reach across borders and insert themselves into transactions without establishing a legitimate local connection, merger review will become an even more unwieldy process, ripe for greater abuse and misuse.