Following its first-phase review of Sabre's proposed $360 million acquisition of Farelogix, the U.K. Competition & Markets Authority on Friday expressed concerns, fearing the deal could diminish competition, reduce innovation and lead to higher prices or lower-quality service for airlines, travel agencies and consumers. As such, the CMA now is prepared to escalate its review.
As the U.S. Department of Justice weighs whether to file suit to block the transaction's closing, Sabre is moving forward on its proposed Farelogix takeover, announced in November 2018.
Addressing the CMA's first-phase findings in a statement Friday, the regulatory authority noted Sabre's position as one of three "large and well-established suppliers" of travel distribution systems.
"The CMA’s initial, Phase 1, investigation has found that Farelogix is much smaller at present but is an important competitive threat to Sabre and recognized as an important innovator with a disruptive business model," according to CMA. "Farelogix has already had a significant impact in the industry through its use of new and innovative technology to distribute more sophisticated airline products and, without the merger, would have been expected to further develop and grow the use of its technology in future."
CMA continued: "Should the deal go ahead as planned, the CMA is concerned that Sabre would not face enough competition from other suppliers, leading to higher prices or lower quality services, as well as reduced innovation in the industry generally, which could have adverse effects for airlines, travel agents and consumers across the U.K."
In response, Sabre stated Friday: "We note the actions taken by the CMA and are working closely with the authority to demonstrate the significant benefits the transaction will bring to our customers."
In June, CMA announced launch of its inquiry into the Sabre-Farelogix tie-up and invited "interested parties" to comment by July 5.
On Aug. 12, CMA issued an initial enforcement order, which according to U.K. guidelines, does not typically "prevent completion of the transaction from taking place" but rather limits integration of the companies while they are under review.
CMA has been under deadline to complete its first-phase review by today, Friday, Aug. 16.
According to U.K. competition guidelines, if CMA "determines whether it believes that the merger results in a realistic prospect of a substantial lessening of competition" in its Phase 1 review, then it "has a duty to launch an in-depth assessment (Phase 2), although merging parties may offer to modify aspects of the transaction to 'remedy' any competition concerns identified."
Regarding next steps, CMA stated Friday: "If the merging businesses are unable to overcome CMA's concerns, the deal will be referred for an in-depth Phase 2 investigation."
Phase 2 reviews generally conclude within 24 weeks, during which a panel "conducts an in-depth investigation" to decide if a "substantial lessening of competition" would result from a transaction, according to U.K. guidelines.
If CMA concludes there would be a "substantial lessening of competition," it may require remedies, which could include "prohibiting the merger or requiring the divestiture of parts of the business," according to U.K. merger guidelines.
Meanwhile, all eyes are on DOJ, which must file suit to block the deal by Wednesday, Aug. 21, if it chooses to intervene. DOJ this week declined to comment. CMA stated it is working "closely" with DOJ on their respective reviews.