The European Commission recently blocked two proposed mergers—UPS’s takeover of TNT and Ryanair’s takeover of Aer Lingus—despite offers by both sets of parties to make divestments.
The UPS takeover attempt of Dutch delivery group TNT was blocked by the EC over concerns that it would substantially decrease competition in the express-package market by reducing the number of competing businesses from three to two in 15 European countries. The EC found that FedEx, the smallest of the “integrated” express delivery companies in Europe, did not exercise a sufficient constraint on the merging entities to be considered a viable competitor, leaving only DHL, UPS and TNT as relevant market operators. The EC relied on economic analyses (including those provided by the parties) demonstrating that the proposed deal would likely result in price increases that would not be adequately offset by the claimed gains in efficiencies. In an effort to address the concerns the EC raised, UPS offered to sell TNT assets in the 15 countries identified, but it could not persuade the EC that any purchaser would offer a sufficient competitive constraint on the merged entity or, in fact, that a purchaser could be found and confirmed before the regulatory deadline.
The EC also blocked Ryanair’s latest takeover attempt of Aer Lingus. The EC was concerned the merger would harm consumers by reducing choice and leading to increased air fares, notwithstanding proposals from Ryanair designed to allay those worries. This is the second time that budget airline Ryanair’s bid for the Irish national flag carrier Aer Lingus has been frustrated by competition authorities, and is the first time the EC has blocked a proposed merger twice. The EC found that Ryanair and Aer Lingus currently compete on 46 routes to and from Ireland. On 28 of these routes, a post-takeover Ryanair would have enjoyed an outright monopoly, and on the 18 remaining routes it would have had “very high market shares.” Ryanair’s proposals, which included the divestiture of 43 of Aer Lingus’s routes to UK regional airline Flybe and further divestiture of take-off and landing slots to IAG, the owner of British Airways, failed to convince the EC to alter its stance.
Following the EC’s decision, the UK’s Competition Commission will re-open its investigation into whether Ryanair should be forced to sell its existing minority stake in Aer Lingus. The UK competition authorities are concerned that as Aer Lingus’s largest shareholder, Ryanair has a “material influence” over its competitor that may restrict competition. The investigation was suspended pending the EC’s investigation into the proposed takeover.