Eidetic

Having searched the forum for this topic without success, I pose the question, will the EU antitrust czar approve a KL/AF "merger"?

ralfkrippner

I am no expert on this but from my viewpoint I see no problems with a partnership or merger. BA and LH with their partners are in a much stronger position and I see no AF/KL monopoly in any market.

BlackBerryAddict

According to the Telegraaf online, the plans have been presented to the European Commission, which did not see any major problems.

daved

The EU antitrust czar only seems to reject US mergers. How in the hell the EU ever got these rights (for US mergers) is beyond me.

Eidetic

daved, it's not the the EU has extraterratorial rights over US mergers, it's that most multinational mergers (whether of US or non-US companies) don't work unless the EU nations are included ... the "merger" would produce 3 companies: A/B merged outsdie the EU, A in the EU, and B in the EU = a nightmare.

ananthar

That still doesn't explain it, unless EU offers some special concessions to foreign companies that submit to EU rules. What is to prevent A & B (both US companies) from merging and just ignoring EU ? On what basis can EU prevent A/B merged from selling its products in EU or otherwise discriminate between A/B and another US company C that never merged but is as big as A/B ?

Eidetic

ananthur, companies basically don't like criminal indictments ... bad press, poor accommodations, no pension plan, etc. There is also civil litigation. IOW, antitrust violations carry both criminal and civil penalties. A/B does business in the EU, the directors and officers get indicted and could receive jail time, criminal fines, and civil damages. Directors and officers are rather averse to these risks.

[This message has been edited by Eidetic (edited 09-16-2003).]

grayst

Further to the mergers issue - usually it's the case that the EU (or the FTC in the US) doesn't fully block a merger, but imposes conditions requiring the sale of certain assets or businesses to avoid a dominant position in the jurisdiction in question.

Examples include GE-Honeywell - the EU required that businesses in Europe be sold off, and GE decided this invalidated the whole deal. Another example was BP buying ARCO - the FTC required BP to sell oil fields in Alaska and other assets on the US West Coast, BP did so and the deal went ahead.

It only looks like it's always the EU vetoing US deals because most global companies are US-domiciled. There are very few EU-domiciled firms with US presences big enough to warrant action from the FTC.

However, imagine if BP were to try and merge with Shell - that would certainly provoke an FTC veto, or at least a requirement for large sell-offs.

House

EU and FTC tend to look at airline mergers on a route-by-route basis. If KL and AF between them are likely to hold a monopoly, then they will be asked to make decently timed slots available at the relevant airports for other carriers who might want to act as competition on the route going forward, and offer them access to the AF/KL frequent flyer programmes if they don't already have their own.

Basically, KL and AF will end up having to make some room at CDG and AMS for any other airline (Easyjet springs to mind) who wants to start or increase services between airports in the Netherlands and France.


Also, for what it's worth, the EU cleared the United/US Airways merger, while the US authorities blocked it!

Eidetic

For educational purposes, a very insightful quote from today's WSJ.

"KLM's inclusion into SkyTeam, the alliance led by Air France and Delta Air Lines, is the likeliest outcome of the talks, analysts say, because of regulatory obstacles to a full merger. Air travel between the U.S. and Europe is regulated by bilateral agreements that hinge on the foreign carrier being based in and controlled by the country signing the pact. If Air France took a controlling stake in KLM, the Dutch carrier would almost certainly lose landing privileges in the U.S."

So... perhaps the only announcement we'll see is "KL joins SkyTeam", followed shortly by NW and CO join SkyTeam.

House

AF should be able to acquire up to 49% of KL without triggering the consequences the WSJ talks about (Swissair did this with Sabena, for instance).

Eidetic

More details from a later article, for educational purposes:

"The tie-up would bring together Europe's largest and fourth-largest airlines in a combination bigger than most U.S. carriers. To avoid the regulatory hurdles a merger would face, Air France and KLM are planning to create a jointly owned Franco-Dutch holding company, of which each airline would be a subsidiary, according to the people familiar with the situation. Air France and KLM would preserve their brands and national identities."

Clever.

bk42

Air France and KLM poised to agree alliance
http://www.timesonline.co.uk/article...819640,00.html
A little different take, saying that an alliance will only be pursued for now. And it says that Alitalia will enter into the alliance mix...