Ryanair's announcement on 20 June 2012, to make a renewed offer for Aer Lingus, sparks the next phase in a six year regulatory tussle between the airline and the competition authorities
Although Ryanair's move potentially sidesteps scrutiny by the UK Competition Commission of its existing 29.8% stake in its rival, its renewed bid will instead be scrutinised afresh by the European Commission, who blocked Ryanair's previous bid for Aer Lingus in 2007. If it loses there, it may yet be required to sell down its existing stake in the company.
The European Commission blocks Ryanair's attempt to acquire Aer Lingus
When Ryanair first tried to buy Aer Lingus in 2006, its bid was blocked on competition grounds by the European Commission in Brussels.
At that time, the two airlines accounted for around 80% of European flights from Dublin.
Consistent with its practice in other cases, the Commission analysed the impact of the deal on a "route by route" basis.
In June 2007, the European Commission concluded that, if the deal was allowed to proceed, the merged entity would become the monopoly operator on 22 routes and would have a market share in excess of 60% on a further 13.
The Commission rejected Ryanair's offer to sell off certain airport slots, concluding that this would be inadequate to replace the competition that would be lost.
The European Commission's 2007 decision in effect prohibited Ryanair from acquiring "decisive influence" over Aer Lingus. Ryanair nevertheless proceeded to build up a 29.8% stake in its rival. The Commission indicated that it was powerless to prevent this, since Ryanair's stake was insufficient to confer decisive influence.
Unhappy with the outcome of the European Commission's decision, both Ryanair and Aer Lingus appealed to the European General Court in Luxembourg. Ryanair argued that the Commission was wrong to block the deal. Aer Lingus argued that the Commission was wrong to conclude that it could not require Ryanair to sell down its stake.
In July 2010, the General Court rejected both companies' arguments.
The UK competition authorities target Ryanair's 29.8% stake
Just as the dust was settling on the European court process, in late 2010, the Office of Fair Trading (OFT) threw itself into the fray.
Usually, the OFT has only four months in which to decide on a transaction. However, that deadline does not apply where the OFT could not have acted earlier by reason of the European Commission's merger control review. In this case, the OFT would have jurisdiction only if the Commission did not, hence why the OFT decided to await the outcome of the European court proceedings before acting.
Unhappy with the outcome of the OFT's decision to investigate, Ryanair appealed to the Competition Appeal Tribunal and then to the Court of Appeal. Both rejected its arguments that the OFT was out of time to act. The Court of Appeal handed down its judgment in May 2012.
On 15 June 2012, the OFT referred Ryanair's 29.8% stake in Aer Lingus to the Competition Commission for in-depth review. In doing so, the OFT confirmed that it considers Ryanair has "material influence" over Aer Lingus. Ryanair has made clear that it disputes this, as well as the suggestion that its existing stake is potentially harmful to competition between the two airlines.
Ryanair hits back - a high stakes sidestep of the UK competition review?
Just five days after the OFT referred its minority stake to the Competition Commission, on 20 June 2012, Ryanair announced a new public offer for Aer Lingus. That offer, similar to the one in 2006, will be subject to review by the European Commission.
Ryanair now looks set to do battle with the competition authorities on two fronts. Arguably, the key tussle will be with the European Commission in Brussels. If Ryanair succeeds in winning the argument there, it will be allowed to acquire Aer Lingus outright.
Ryanair has pointed with optimism to recent clearance decisions of other airline mergers (such as BA's acquisition of BMI, which the European Commission cleared in March 2012). However, every deal is assessed on its facts.
In the case of airline mergers, the analysis is done on a route by route basis. If the overlaps remain as significant as they were back in 2007, very extensive remedies will be required. Ryanair has expressed a willingness to offer remedies, but whether they will be sufficiently extensive to restore competition on the affected routes remains to be seen.
Meanwhile, back in the UK, the Competition Commission's review of Ryanair's existing minority stake in Aer Lingus will continue.
Having parallel competition reviews in this way is unprecedented. The merger control rules are designed such that a given deal should be subject to either European Commission review or UK review, but not both. However, in this case, the protracted court challenges have resulted in Ryanair's 2007 acquisition of its 29.8% stake being reviewed in the UK only. Meanwhile, Ryanair's new public offer will prompt a fresh review of that bid by the European Commission.
The intricacies of the jurisdictional rules are such that, if the European Commission clears Ryanair's new bid, the Competition Commission's investigation will become an irrelevance. But if the European Commission blocks the deal, the outcome of the Competition Commission's report will determine whether Ryanair is permitted to retain its 29.8% stake.
The outcome of this saga remains unclear. No doubt, there will be further twists and turns along the way.