May 2020 ▪ Volume 24 ▪ Issue 5

SABRE/FARELOGIX: Enforcers have relatively more experi- INNOVATION, TWO- ence—and success—challenging transac-

LAWYER tions between head-to-head competitors SIDED PLATFORMS, in a market with few rivals and high barri- AND THE RISKS OF ers to entry. The sands can shift dramati- cally, however, when enforcers seek to MULTIJURISDICTIONAL challenge transactions between potential MERGER REVIEWS competitors, firms that are in a vertical re- By Ryan C. Thomas, Molly M. lationship, or firms that supply comple- Wilkens, Matt R. Evans, and Jason A. mentary products or services. Further, the Beer transaction may be subject to review by Ryan Thomas is a partner in the enforcers in multiple jurisdictions that Washington D.C. office of Jones Day. have different enforcement policies, legal Molly Wilkens is an associate in Jones standards, and precedent. These dynamics Day’s Minneapolis office. Matt Evans is a partner, and Jason Beer is an associ- are front and center in a pending transac- ate, in the London office of Jones Day. tion involving technologies used in the Contact: [email protected] or airline industry. [email protected] or [email protected] or In April 2020, over the course of three [email protected].

The M&A days, Corporation and Farelogix, Over the past several years, competi- tion enforcers around the world, including IN THIS ISSUE: in the and Europe, have expressed increasing levels of concern Sabre/Farelogix: Innovation, Two- Sided Platforms, and the Risks about protecting nascent and potential of Multijurisdictional Merger competition, especially in technology Reviews 1 markets. These enforcers question Voigt v. Metcalf: Delaware Court whether dominant firms are harming com- of Chancery Adopts Innovative Approach to Assessing petition by acquiring nascent rivals in an Allegations of Effective Control 11 effort to preempt a growing or potential COVID-19 Pandemic Impacts threat to their incumbent positions. Set- Previously Announced M&A Transactions 17 ting aside government investigations of Middle-Market M&A: A Tale of consummated transactions (which may Two (Very Different) Years 21 provide evidence of actual anticompeti- From The Editor 24 tive effects), most merger analysis is predictive. Enforcers must assess the evi- dence in a legally defensible antitrust mar- ket and demonstrate that the proposed transaction is likely to harm competition by increasing prices, reducing output, or diminishing quality or innovation.

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Inc. received directly opposing reactions in two Sabre intends to appeal the CMA’s exercise of jurisdictions to the likely competitive effects of jurisdiction. The transaction provides a number their proposed transaction. In the United States, of important lessons for companies considering a the DOJ lost its attempt to block the transaction merger with a competitor or potential competitor. when the U.S. District Court for the District of Following a short discussion of the industry and Delaware held that the government failed to meet the decisions in the U.S. and UK, we discuss five its burden of proof.1 The court concluded that key takeaways. Sabre and Farelogix did not compete as a matter Airline Travel Booking Industry of antitrust law because Sabre is a two-sided platform and Farelogix is not. The parties’ vic- Sabre and Farelogix both provide technology tory, however, was short-lived. Days later, the that facilitates airline bookings made through United Kingdom’s Competition and Markets travel agencies. Airlines sell tickets through two Authority (“CMA”) blocked the transaction. The kinds of travel agencies: online travel agencies, CMA focused on competitive effects in two such as Expedia and Priceline, and traditional markets (rather than one, two-sided market) and travel agencies. Sabre operates a Global Distri- concluded that the transaction would result in bution System (“GDS”), which allows travel harm in each. agencies to search for and book flights across multiple airlines. Sabre’s GDS is a two-sided Although the DOJ indicated it would appeal platform facilitating transactions between airlines the district court decision, the parties abandoned and travel agencies. Sabre’s GDS is the largest in the transaction on April 30 when their merger the United States, with around 50% of the airline agreement expired. In a press release, Sabre cited bookings made through travel agents. Sabre the CMA’s decision, noting that it believes the competes with other GDSs, Amadeus and Travel- CMA was “acting outside the bounds of its juris- port, as well as the airlines’ direct distribution dictional authority.” According to public reports, channels (i.e., their own websites and

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2 K 2020 Thomson Reuters The M&A Lawyer May 2020 | Volume 24 | Issue 5 airline.com.) According to the court, these alter- transaction required the parties to file and observe natives are an important constraint on Sabre’s mandatory premerger waiting periods under the GDS fees. Hart-Scott-Rodino Act. Following a preliminary inquiry, in February 2019, the DOJ issued a Farelogix does not operate a GDS but devel- “Second Request,” a significant document, data oped a separate data transmission standard, New and information discovery request. Unlike in the Distribution Capability (“NDC”), which allows United States, the UK has a voluntary merger fil- airlines to bypass a GDS and connect directly to ing regime, meaning that merging parties are not travel agencies for bookings. Farelogix only sells obliged to notify the antitrust authority of their its solution, Farelogix Open Connect (“FLX transaction for merger clearance. Sabre did not OC”), to airlines. While NDC enables airlines to voluntarily notify the acquisition in the UK. De- distribute more complex and personalized offers spite the lack of a notification, the CMA opened than GDS can support, GDS allows travel agen- a merger investigation in June 2019. At the end cies to conduct less frequent, broader searches of its Phase 1 review, in August 2019, the CMA than with NDC. In the direct channel, airlines can identified substantive concerns with the use FLX OC to distribute directly to travel cus- transaction. Later that month the DOJ filed suit tomers, including through the airline’s own under the U.S. merger laws (Clayton Act, Section website. Airlines can also use FLX OC in the 7) in the U.S. District Court for the District of indirect channel through direct connects with Delaware to block the parties from closing. travel agencies and non-GDS aggregators (both a form of “GDS bypass”) and through “GDS pass- The DOJ’s August 2019 complaint alleged that through,” by which Farelogix’s product shares the transaction would reduce competition in NDC content to travel agencies using GDS “airline booking services” and lead to higher aggregation. prices, reduced quality, and less innovation.2 The complaint opens with this statement: “Sabre’s The antitrust issues involve the parties’ core proposed acquisition of Farelogix is a dominant products. In 2018, Sabre’s revenues were ap- firm’s attempt to eliminate a disruptive competi- proximately $3.9 billion. Most of the company’s tor after years of trying to stamp it out.”3 revenues and profits come from GDS booking fees paid by Sabre’s airline customers. FLX OC Then, in early September 2019, the CMA generates more than half of Farelogix’s revenues. opened an in-depth Phase 2 review, which is the Farelogix has no travel agency customers and no UK equivalent of the U.S. Second Request commercial relationship with travel agencies. process. The Phase 2 referral triggered UK law Farelogix earned roughly $42 million in revenues prohibiting the parties from closing the deal in 2018. before obtaining clearance from the CMA.

DOJ and CMA Investigations and The U.S. District Court Rules Against Challenges the DOJ

In November 2018, Sabre agreed to acquire On April 7, 2020, the court denied the DOJ’s Farelogix for approximately $360 million. The request for an injunction to block the transaction.

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The decision is notable for a number of reasons, court held that the jury’s verdict “was erroneous but principally because of the court’s holding that because the Sabre GDS is a transaction platform, the DOJ failed to identify a proper relevant mar- and the relevant market for such a platform must ket in which the parties compete: “As a matter of as a matter of law include both sides.”9 antitrust law, Sabre, a two-sided transaction The court concluded that both cases applied to platform, only competes with other two-sided the Sabre/Farelogix transaction, Amex because platforms, but Farelogix only operates on the “there is no meaningful distinction between” 4 The court airline side of Sabre’s platform.” claims based on unreasonable restraints in an reached this decision based on a combination of agreement and a merger challenge, and US Air- the Supreme Court’s 2018 American Express de- ways because the Second Circuit applied Amex cision and the Second Circuit’s 2019 finding that “to the very same Sabre GDS platform.” Based Sabre GDS is a two-sided platform. on this precedent and authority, the court held In Ohio v. American Express,5 the Supreme that Sabre and Farelogix do not compete as a mat- Court considered whether American Express ter of law because Sabre is a two-sided platform 10 violated Section 1 of the Sherman Act by requir- and Farelogix is not. ing merchants to agree to “anti-steering” contract Despite the court’s dispositive ruling as a mat- provisions. These provisions prohibited mer- ter of law, the court also assessed the govern- chants from steering customers to use credit cards ment’s attempt to meet its burden on the assump- with lower transaction fees than the American tion that Farelogix and Sabre could be found to Express card. The Court evaluated the market and compete in the same market. The court explained concluded that credit card networks are two-sided its reasoning for doing so, including because, “as platforms involving entities that offer different is clear from the findings of fact, the Court has products or services to two different groups who found as a matter of real-world economic reality both depend on the platform. Such platforms that Sabre and Farelogix do compete to a certain “cannot raise prices on one side without risking a extent, so resting a decision in this case entirely 6 feedback loop of declining demand.” The two on a determination of law that [the parties] can- sides are interdependent. Therefore, “courts must not compete in a relevant market is not a comfort- include both sides of the platform—merchants able result.” A few examples from the decision of and cardholders—when defining the credit-card this “real-world economic reality”: market.”7 E “Notwithstanding [the merging parties’] In US Airways v. Sabre Holdings Corp.,8 US repeated denials at trial . . . a preponder- Airways claimed that contractual provisions in ance of the evidence shows that Sabre and its contracts and monopolization of the distribu- Farelogix do view each other as competi- tion of system services violated the antitrust laws tors, although only in a limited fashion.” (Sections 1 and 2, Sherman Act). On appeal, the Second Circuit vacated the jury verdict for US E “Sabre contends that it does not view NDC, Airways and held that the Sabre GDS is a two- even when used for GDS bypass, as a threat. sided transaction platform. Citing Amex, the Sabre further contends that the principal

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reason it wants to acquire Farelogix is for CEO to current Sabre and Farelogix airline its FLX M product, not for FLX OC or to customers. Those letters, which were intended to address the risk of GDS bypass and address DOJ’s concerns, reflected Sabre’s com- passthrough. The Court does not believe mitments to customers post-closing, including to Sabre.” provide, support, and price Farelogix products “at industry competitive rates that are no greater E “The Court does not find credible the Sabre than they are today.” While the court believed witnesses’ testimony that none of the uses that Sabre’s CEO intended to abide by the com- of Farelogix technology is viewed as a mitments, it also agreed with the government that threat to Sabre. It would be irresponsible none of the commitments had been conformed to for Sabre’s leadership not to understand a legally binding agreement and that “CEOs— that GDS bypass, and even GDS integra- and even firm cultures—can change.” tion and the wholesale model, are threats to Sabre’s traditional revenue flow.” In its final analysis, the court concluded “the most likely impact on pricing is that prices will Regardless of this and other evidence, the remain the same or be reduced following the court concluded that DOJ nevertheless failed to transaction.” meet its burden of proof, even assuming the par- ties competed in the same market. “DOJ has The DOJ filed a notice of appeal with the Third failed to produce evidence that the anticompeti- Circuit the day after the decision. The DOJ tive impact of the merger on the airline side of subsequently asked the appellate court to stay the the GDS platform would be so substantial that it issuance of a briefing schedule until the govern- would sufficiently reverberate throughout the ment “either (1) notifies this Court that the Solic- Sabre GDS to such an extent as to make the two- itor General has approved this appeal or (2) sided GDS platform market, overall, less moves to withdraw the appeal. . .” The merging competitive.” The government and its economic parties opposed a stay, and maintained that the expert, according to the court, “did not even try DOJ’s request was “pretext to further delay this to meet this burden,” focusing instead on one side litigation.” of the Sabre GDS “in isolation.” CMA Blocks the Deal The court considered opinions from industry Two days after the U.S. court ruled against participants and concluded that “[m]ost of the DOJ, the CMA blocked the transaction.11 Before players in the airline travel ecosystem—includ- turning to the substance, the CMA had to justify ing especially travel agencies and airlines—sup- its jurisdiction over a transaction involving two port the proposed transaction.” “Several of those non-UK companies. UK rules provide for juris- who do not, and United Air- diction if the target business meets a UK revenue lines, have obvious interests in seeing the deal threshold or if the parties have overlapping busi- die” because they had “previously attempted to ness in the UK and account for a combined 25% acquire Farelogix.” “share of supply” in the country. Farelogix has a The court also considered letters from Sabre’s negligible presence in the UK, with only one

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British Airlines contract as a result of British own standalone innovation pipeline remained Airlines’ interline partnership with American important, finding that, absent the merger, Sabre Airlines, so it fell short of the revenue test. This likely would develop into a third significant left the share of supply test. The CMA adopted competitor within three to five years through the what could be considered a creative framework development of its own product that would com- to describe a category of services in the UK in pete more closely with Farelogix. Notably, this which both parties overlapped and had an aggre- period is longer than the CMA’s standard two- gate share exceeding 25% share of supply. Ulti- year period for assessing potential competition. mately, the CMA settled on “IT solutions to UK airlines for the purpose of airlines providing Second, the CMA assigned significant weight travel services information to travel agents to en- to the opinions of industry participants. While able travel agents to make bookings.”12 there was not evidence of widespread concern among travel agents about the merger, half of the The CMA focused on two markets (rather than airlines that the CMA contacted expressed con- one, two-sided market) and concluded there cerns about the deal. The airlines asserted that would be competition harm in each: (1) supply of the transaction would eliminate a successful and merchandising solutions (non-core passenger ser- growing innovator that has been an alternative to vice systems for merchandising modules) on a the GDSs, ultimately setting back progress in worldwide basis, and (2) supply of distributions developing NDC-enabled solutions. solutions to airlines (services that facilitate indirect distribution of airline content) on a Third, the CMA rejected the parties’ argument worldwide basis. The CMA based its decision on that the merger would enhance Sabre’s ability to a number of factors. compete with competitors, particularly Amadeus, leading to more compelling solutions to airlines. First, despite Farelogix’s current small share The CMA concluded that, absent the transaction, in the UK, the CMA focused on its role as an Sabre possessed the ability and incentive to innovator: “The importance of the competitive achieve these objectives, so there was insufficient constraint imposed by Farelogix is better demon- evidence that the merger would enhance market strated by its role in driving the GDSs to enhance rivalry. When the parties’ efficiencies arguments their offering to airlines, in particular by adopt- failed, they offered a number of behavioral reme- ing NDC and enabling GDS pass-through.”13 The dies, which the CMA also rejected. CMA considered that Farelogix’s continued in- dependence would encourage this innovation, Public reports indicate that Sabre intends to giving airlines more choice and enhanced service appeal CMA’s exercise of jurisdiction. If Sabre offerings, whereas a merger would reduce com- elects to continue the fight, the company has four petitive pressures and likely lead to higher prices weeks from the date that the prohibition decision in the short run and weaker service offerings in was made available to the parties to appeal to the the long run. The CMA also stated that Sabre’s Competition Appeal Tribunal.

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Five Lessons for Merging Parties agencies have rules empowering a local competi- tion authority to review transactions. These 1. Beware of Scrutiny from Competition Authorities Regardless of Purchase Price regimes can be divided between “mandatory” and “voluntary” filing jurisdictions. In mandatory By the standards of many transactions that are jurisdictions, like the United States, merging par- reviewed by competition authorities, this one was ties whose transactions meet certain criteria are small. Despite a purchase price of $360 million obligated to notify the FTC and DOJ and abide and target 2018 revenues of $42 million, this case by statutory waiting periods prior to closing. In provides a reminder that competition authorities voluntary jurisdictions, like the UK, there is no may investigate and challenge a relatively small statutory bar to closing a deal without submis- acquisition if they believe it will lead to substan- sion of a merger clearance notification. Doing so, tial anticompetitive effects. This is especially true however, risks a “last minute” ban on closing if there are active complainants. imposed by the relevant competition authority. This ban can occur either directly (for example, Antitrust enforcers such as the DOJ and CMA in the case of the CMA), via a court order (for regularly solicit feedback from a variety of example, in the case of Australia), or through a industry participants when evaluating the com- post-closing merger investigation which, worst petitive impact and potential harms of a case, could result in the entire deal being transaction. For example, the U.S. agencies’ Hor- unwound. izontal Merger Guidelines state that “[t]he con- clusions of well-informed and sophisticated Sabre/Farelogix was subject to a mandatory customers on the likely impact of the merger filing in the U.S. and a Phase 2 investigation in itself can also help the Agencies investigate com- the UK. This meant that the parties were barred petitive effects, because customers typically feel under the respective merger statutes in both the consequences of both competitively benefi- jurisdictions from closing until they obtained 14 cial and competitively harmful mergers.” Of regulatory clearance or the relevant waiting course, whether a U.S. court assigns the same sig- periods lapsed. It appears the parties concluded nificance to such concerns as the DOJ during an that the acquisition was reportable under the investigation is by no means guaranteed, as the Hart-Scott Rodino Act. The parties then ex- Sabre decision confirms. Courts have dismissed hausted the HSR process and waiting periods, put customer complaints for a variety of reasons, the DOJ to its burden of proof and prevailed in including, for example, because customers were litigation at the district court level. ill-informed about the marketplace (such as in U.S. v. Oracle), or, as is the case here, if they had In the UK, Farelogix had a negligible presence, conflicting motives. and arguably no presence. The CMA neverthe- less asserted jurisdiction based on its character- 2. Watch Out for “Voluntary” Filing ization of the parties’ “share of supply” in the Jurisdictions and Aggressive Assertions country. This is not the first time that the UK has of Jurisdiction adopted an aggressive stance on jurisdiction. More than 130 countries and multinational Recent cases include Roche/Spark and Hunter

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Douglas/247 Home Furnishings. In the former was overturned. This case highlights the differ- case, involving gene therapy and non-gene ence in procedural rules in the U.S. and the UK. therapy Hem A treatments, even though Spark In the U.S., the DOJ cannot unilaterally block had no revenues in the UK, its presence in the parties from closing a transaction; the govern- UK through a handful of employees conducting ment must convince a federal judge that the trans- marketing activities in respect of a product that action violates the U.S. merger laws. In the UK, remains at the clinical trial stage was deemed by contrast, the CMA is vested with this unilat- enough of a basis to assert jurisdiction. This was eral authority. If the parties ignore a CMA prohi- established purely on the grounds that Roche and bition order, the CMA could seek a court order Spark together accounted for more than a 25% enjoining completion of the deal. Such a step has share of full time equivalent employees in the UK never been taken in the UK given the serious con- who were engaged in activities relating to the sequences, including fines and, potentially, crim- same category of goods. In the latter case, the inal proceedings. CMA used 2019 data to assert jurisdiction over a This dynamic, in part, explains why merging transaction entered into in 2013, on the grounds parties that are subject to multijurisdictional that the parties did not put material facts about reviews and closing conditions often do not the 2013 deal into the public domain until 2019. litigate in the United States if the DOJ or FTC 3. Different Jurisdictions Often, But Do seeks to enjoin the transaction. Why go through Not Always, Agree on Outcomes the time, expense and uncertainty of U.S. litiga- Merging parties should keep in mind that, tion when, even if the parties prevail, closing remains subject to clearance in one or more other while competition authorities often rely upon the jurisdictions? It is not uncommon for U.S. and similar information produced by the parties (via European competition agencies to review the confidentiality waivers), each jurisdiction oper- same transaction and reach different conclusions ates under different standards and precedents, at the (relative) margins that account for agency/ and they are under no obligation to follow one country-specific concerns. (See, for example, the another. Here, the CMA relied on much of the different remedies obtained by DOJ versus the same evidence as the DOJ, including transcripts European Commission in Bayer/Monsanto.) from U.S. depositions and the U.S. trial, but also However, although not unprecedented, it is very collected its own information. As described rare for a foreign agency to oppose a transaction above, the CMA and the U.S. district court often involving the same fundamental evidence that reached opposite conclusions on key issues, has been cleared unconditionally by a U.S. en- including market definition and the relative forcer (FTC, DOJ) or a U.S. court. Sabre and importance of Farelogix as an innovator. Farelogix no doubt expected (hoped) that the Before the parties abandoned the transaction, CMA would allow their transaction to proceed the DOJ was evaluating what, if any, relief to (perhaps with a negotiated remedy) if they con- seek pending the resolution of its appeal. In any vinced the U.S. district court that the DOJ failed event, the parties could not have closed their to meet its burden of proof.15 The CMA, however, transaction unless and until the CMA’s decision did not follow suit.

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4. Market Definition Matters transaction platforms,” which facilitate a “single, simultaneous transaction between participants.”18 Under U.S. law, market definition is a thresh- Despite this language, the court found the DOJ’s old requirement in any merger challenge. The arguments unpersuasive. Sabre GDS supplies one DOJ alleged that Sabre and Farelogix are current product (transactions that link airlines and travel and potential competitors as a matter of law and agencies) and “Farelogix indisputably does fact. By characterizing the parties’ business as not.”19 “horizontal,” the government sought to rely on market concentration figures to establish its Amex was controversial when decided and prima facie case. If the government could show remains so. Many question how U.S. government that the transaction would lead to undue concen- enforcers and courts will apply its holding to tration in the market, it would be entitled to a popular technology platforms brought under the presumption of competitive harm. The parties, Sherman Act involving claims of potential collu- however, maintained that this is a vertical trans- sion or monopolization. The Sabre/Farelogix de- action in which Sabre and Farelogix sell products cision formally extends the debate to the Clayton at different stages of the distribution chain. This Act (mergers). The DOJ provided notice of its is a critical distinction because there is no pre- intention to appeal the decision to the Third sumption of harm in vertical mergers since the Circuit. The appropriate application of Amex transaction does not increase concentration likely would have been a key issue on appeal. levels.16 5. “Hot” Documents Provide Important On this important question of market defini- Evidence in Antitrust Cases, But Are Not tion, the court ruled that, consistent with the Always Dispositive Supreme Court’s Amex decision, the parties could The DOJ complaint described various Sabre not compete as a matter of law. Yet the court also and Farelogix “hot” documents, depicting close cited contrary evidence—the “real-world eco- competition between the parties, Sabre’s concern nomic reality”—that the parties do compete. The with future competition from Farelogix, and DOJ argued that Amex does not apply, and there Farelogix’s complaints about Sabre business is some language in the decision that not all two- practices. In its decision, the district court re- sided platforms require an evaluation of overall viewed a substantial history of the industry and competitive effects. According to the Supreme the interactions between the parties and found Court, “it is not always necessary to consider that “a preponderance of the evidence shows that both sides of a two-sided platform.” “A market Sabre and Farelogix do view each other as com- should be treated as one sided when the impacts petitors, although only in a limited fashion.”20 of indirect network effects and relative pricing in that market are minor.”17 By way of example, the Yet despite evidence “that Sabre will have the Court distinguished the newspaper industry, incentive to raise prices, reduce availability of where the indirect network effects operate only FLX OC, and stifle innovation,” the court held in one direction (because readers care less about that “[n]evertheless, DOJ has not persuaded the the amount of advertising), from “two-sided Court that Sabre will likely act consistent with its

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history or these incentives and actually harm this dynamism and avoid provocative statements competition if it is permitted to complete the about, or a singular focus on, the competitive sig- acquisition of Farelogix.”21 This conclusion is nificance of a would-be merger partner or acqui- striking. The court seemed to acknowledge this sition target, the better. as well, at several points juxtaposing conflicting The views and opinions set forth herein are the evidence and ultimately resolving the figurative personal views or opinions of the authors; they “tie” in favor of the parties: do not necessarily reflect views or opinions of the Even though the Court rejects Sabre’s story about law firm with which they are associated. not perceiving GDS bypass as a threat and about acquiring Farelogix principally for FLX M, the Court does find credible Sabre’s representations ENDNOTES: to the market that it intends to hold or even lower 1United States v. Sabre Corp., Civil Action prices for FLX OC if it succeeds in acquiring No. 1:19-cv-01548-LPS, Dkt. No. 277 (D. Del. Farelogix. Doing so would be consistent with the Apr. 8, 2020) (hereinafter “Sabre Decision”). internal financial modeling Sabre used in decid- 2Complaint, United States v. Sabre Corp., ing to pursue the transaction. . . . The record is (Aug. 20, 2019), available at https://www.justic not devoid of contrary evidence. . . . Still, on e.gov/opa/press-release/file/1196816/download the whole, the Court is persuaded that the most (hereinafter “Sabre Complaint”). likely impact on pricing is that prices will remain 3Sabre Complaint, at 1. the same or be reduced following the 4 transaction.22 Sabre Decision, at 68. 5Ohio v. American Express Co., 138 S. Ct. To avoid or minimize the risk of extended 2274, 201 L. Ed. 2d 678, 2018-1 Trade Cas. merger investigations or challenges in the first (CCH) ¶ 80427 (2018). instance, company employees and executives 6Amex, at 2285. should seek to avoid unhelpful exaggerations or 7Id. hyperbole in their public statements and ordinary- 8US Airways, Inc. v. Sabre Holdings Corpo- course documents that do not accurately charac- ration, 938 F.3d 43, 2019-2 Trade Cas. (CCH) ¶ 80921 (2d Cir. 2019). terize the marketplace. This guidance applies 9Id. at 58. with particular force when describing competi- 10Sabre Decision at 72. tive alternatives or the rationale or impact of a 11See CMA, “Sabre/Farelogix merger in- proposed transaction. Documents should be quiry,” https://www.gov.uk/cma-cases/sabre-fare drafted assuming they will be reviewed by gov- logix-merger-inquiry. ernment antitrust enforcement authorities (or 12CMA, “Anticipated acquisition by Sabre plaintiffs in private actions). We recognize that Corporation of Farelogix Inc.: Final Report” at this is often easier said than done. Nevertheless, 58 (Apr. 9, 2020), available at https://assets.publ ishing.service.gov.uk/media/5e8f17e4d3bf7f this type of qualitative evidence plays an impor- 4120cb1881/Final_Report_-_Sabre_Farelogi tant role during merger investigations. In the x.pdf (hereinafter “CMA Final Report”). technology sector and other dynamic industries, 13Id. at 21. the competitive landscape can and does change 14Horizontal Merger Guidelines at § 2.2.2 rapidly. The more a company’s files acknowledge (2010).

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15CMA Final Report at 382 (quoting the Par- dealmakers and their lawyers with reading ties as stating that “it would be inappropriate for material. In Voigt v. Metcalf,1 Vice Chancellor the CMA to continue its investigation, including consideration of remedies, without taking into Laster described a sale process that would make account the implications of the Delaware Court a good issue-spotting law school exam, address- judgment and ensuring that the outcomes of the ing issues of control, director independence, US and UK processes are appropriately aligned” special committee process, recusal, exculpation, before explaining that “it is not incumbent on the CMA (and nor in some cases swill it be legally or disclosure, standards of review, and the incorpo- practically possible, or desirable from a policy ration of books and records on a Rule 12(b)(6) perspective) to come to the same substantive motion. outcome as other jurisdictions, or vice versa.”). 16United States v. AT&T, Inc., 916 F.3d 1029, Some of the Court’s rulings offer a helpful 1032, 2019-1 Trade Cas. (CCH) ¶ 80685 (D.C. review of core M&A doctrine. The Court’s ruling Cir. 2019). that a 35% stockholder with certain governance 17 Amex at 2286. rights under a Stockholders Agreement had ef- 18 Id. fective control of the corporation deserves more 19 Sabre Decision at 70-71. careful study. The quantitative analysis of block 20 Id. at 31. size and its relationship to effective control, and 21 Id. at 87-88 (citing U.S. v. Baker Hughes the nuanced way in which the Court addressed Inc., 908 F.2d 981, 988, 991 1990-1 Trade Cas. various levers that a stockholder might use to ex- (CCH) ¶ 69084 (D.C. Cir. 1990)). ert power, may foreshadow an important trend. 22 Id. at 63-64. This article discusses those issues.2

VOIGT V. METCALF: Transactional Facts DELAWARE COURT OF CD&R acquires control of NCI, then sepa- CHANCERY ADOPTS rates its ownership from its control. Clayton, INNOVATIVE APPROACH Dubilier & Rice (“CD&R”) acquired a control- ling stake in NCI Building Systems in 2009 and TO ASSESSING entered into a Stockholders Agreement in con- ALLEGATIONS OF nection with that investment.3 The Stockholders EFFECTIVE CONTROL Agreement overlaid a contractual governance scheme on top of the default governance struc- by S. Michael Sirkin tures supplied by the company’s charter, bylaws, Mike Sirkin is a partner at Ross Aronstam & and the DGCL.4 In some respects, the Stockhold- Moritz LLP in Wilmington, Delaware. The views ers Agreement supplemented the default rules of below belong to the author alone and do not necessarily represent those of Ross Aronstam & board-centric, representative corporate democ- Moritz LLP or its clients. Contact: racy by giving CD&R the power to participate [email protected]. directly as a stockholder in corporate decisions.5 In February, just before the M&A markets As a majority stockholder, CD&R controlled all paused, the Delaware Court of Chancery left board and stockholder-level decisions.

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