Late Exit Pass

The CMA’s recently-published Phase 1 decision on the Korean Air Lines/Asiana Airlines merger includes interesting discussion on the way in which arguments unfolded as to whether that the target would exit if the merger did not proceed.

The merging parties’ initial submission was that, in the absence of the merger, Asiana would be a substantially weaker competitor.

According to the decision write-up the parties only later argued that the criteria for the ‘exiting firm’ test are met, an argument that the CMA rejected.

In the parties’ response to the CMA’s issues letter, they indicated that they had not made this argument earlier because the CMA had indicated that it would be highly unlikely to accept such a counterfactual in Phase 1.

The CMA said that the fact that the Parties only submitted that the exiting firm test is met at a very advanced stage of the CMA’s investigation (ie in response to the issues letter) limited the CMA’s ability to conduct the evidence-gathering that would typically be required to assess whether this test is met.

This is all rather circular!

But it isn’t new.

Late and unsuccessful deployment of an exiting firm case at Phase 1 has been seen many times before.

In fact I talked about it in my very first blog – nearly ten years ago!

In a later post I’ll aim to look at some of the reasons why this scenario recurs.

In the meantime, here’s the key question that firms contemplating merger in the UK might want to ask very early on:

What can be learnt from the 48 previous CMA cases in which ‘exiting firm’ arguments have been deployed about :

prospects for success and

how best to make the argument?

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