Examination of Witnesses (Questions 432-439)
MR GREG
MCMAHON
AND MR
JAMES JENNINGS
24 JANUARY 2007
Q432 Chairman: Welcome to Sub-Committee
E, Mr McMahon and Mr Jennings. I know that Mr McMahon has given
evidence to a Sub-Committee before and knows the form. We are
in public; it will be transcribed and you will get an opportunity
to correct and perhaps add to that. In the meantime it will be
webcast. Mr McMahon, we know that you are Group Company Secretary
and Head of Legal Services at MyTravel Group. Mr Jennings, I understand,
is a fellow director?
Mr McMahon: James is the Group Strategy Director
in charge of corporate development, and merger and acquisition
activity. He and I worked together on the MyTravel/First Choice
transaction.
Q433 Chairman: Excellent. As you
know, we are anxious to hear from you the user's experience of
these processes, the insider's view of the practical problems
you meet. You have very helpfully provided us, I see, with a chronology
which I have not myself, I am afraid, had an opportunity to read
but I think you are aiming to talk us through that and give us
an introduction by telling us about your thus far thwarted attempts
at a merger.
Mr McMahon: I am very happy to do that. Maybe
I could just, my Lord, give a brief introduction of the background
to our involvement in this. MyTravel used to be known as Airtours
and in 1999 as Airtours we were one of four major UK package holiday
companies, and we were probably number two in the market and First
Choice was probably number three, there or thereabouts. They were
fairly similar sized businesses. In 1999 the board of Airtours
decided that we would quite like to buy First Choice so we made
a bid to purchase it financed entirely by shares. The principal
conditions were that we got control and that we got regulatory
approval. Where we have ended up is clearly the regulatory approval
was not forthcoming. The relevant regulatory authority was the
European Commission because of the turnover of Airtours across
Europe, and when we made our bid which was on 29 April, at the
same time we made the appropriate filing to Brussels in Form CO.
A month later, in accordance with their process, the European
Competition Directorate, as they were then, decided to initiate
a phase two or serious doubts investigation, and, just going through
the chronology, there was then a series of procedural steps including
a statement of objections and our reply to that leading to a hearing
before the hearing officer in July. We then, in an effort to make
some remedies, made a series of undertakings. Those were considered
by the Commission's Advisory Committee a couple of days later,
on 9 September. Following that we submitted some further undertakings
but, on 22 September, the Competition Directorate decided to prohibit
our transaction. We were extremely disappointed. The bid which
we had made in April under the rules of the City Code had had
to lapse in June, because if you go into a serious doubts investigation,
a second stage regulatory investigation, you have to lapse your
public bid. We had spent all of the summer effectively trying
to keep the transaction warm so that if we got through the second
stage of the investigation we could re-bid, and the evidence which
we subsequently put into the Court is that we would have re-bid,
so we were very keen to re-bid. However, because the transaction
had been prohibited we were not able to re-bid. Thereafter we
thought that we ought to see what kind of redress there was, because
we thought the decision to prohibit the transaction was incorrect,
so, following advice, we submitted in December within the appropriate
time limit an application for annulment of that decision. That
application came before the Court, after a series of procedural
steps during the following year, in October 2001, about 18 or
20 months after we had submitted it, and we got a decision on
that application in June 2002, so the prohibition decision was
taken in September 1999 and the annulment of that decision was
issued in June 2002. We were very pleased that we had been vindicated,
if I may say, in our decision to bid, that our decision that we
ought to get regulatory approval which had been made in April
1999 was vindicated, and that the Commission's decision to prohibit
our transaction had been annulled. We had at that stage incurred
a significant amount of costs so we made an application effectively
for our trial costs. There was then a series of hearings, a series
of exchanges with the Commission, resulting in a claim for costs,
a taxation claim if you like, for costs before the Court. That
was dealt with in June 2004 but in the meantime, having analysed
the judgment of the Court of First Instance on the annulment of
the original prohibition decision, and looking at the provisions
of the Treaty of Rome which entitled those who have been involved
in a matter which the Commission institutions have got wrong and
which give rise to a claim for damages, we decided to make a claim
for damages, and that claim for damages is on-going and remains
before the Court. For reasons which I am sure your Lordships will
understand I prefer not to discuss anything about that damages
claim because it remains an open case. However, suffice to say
that our application for damages was lodged in June 2003; the
pleadings closed in May 2006; and we await a hearing date. That
gives a brief overview of the circumstances in which we have had
experience of the Court process in seeking to redress an incorrect
decision made by a European competition authority. There are one
or two clear conclusions. Would it be appropriate for me to just
summarise those now?
Q434 Chairman: Yes.
Mr McMahon: Put simply, it takes a very long
time. In our instance, certainly, by the time the Court rules
upon whether the original decision by the Commission was correct
the underlying transaction has gone away because life has moved
on. Taking a step back, between 1999 and June 2002 there was the
September 11 attack in New York and other places and that changed
the nature of the travel business, so by the time we came to get
our decision which would have allowed us to re-bid in 2002 everybody's
position had moved on significantly and the world had changed
quite considerably. The upshot of that is that, whilst there is
a right of redress, if the Commission gets a competition decision
wrong and that can be established, the period which it takes to
get that decision determined by the Court essentially means that
the redress which one is seeking is not available to keep that
underlying transaction alive, and the transaction has gone. Mr
Jennings may want to talk about the detail of the original bid,
if that would help, my Lord, or maybe we could talk about the
competition process.
Q435 Lord Borrie: I would just like
to ask Mr McMahon, if I may, or Mr Jennings, to say a little more
about the reasons for what seems to be a very long gap, as you
have described, between the prohibition decision in September
1999 and the prohibition decision being annulled in June 2002.
You mentioned the bombs in New York but, of course, there may
be many reasons, and I would be glad to know what you say you
think the reasons were, and why there should be such a gap. It
may be nobody's fault, it may be partly somebody's fault, it may
be a combination of faults on several sides, but what was the
case, in your view, here?
Mr McMahon: That is very difficult to tell,
I have to say. Effectively leading the litigation on behalf of
the company I can break it down into a couple of areas. The first
is it took us a couple of months to make our minds up that we
would actually spend the money to seek an annulment application.
I had to put it before the board, so having spent most of the
summer trying to keep the transaction alive we then had to deal
with the fact that the transaction was not then going to proceed,
so by the time we got the board to consider whether or not we
should be making a claim for the decision to be overturned, frankly
it took a couple of months for us to get through all the other
matters that had to be dealt with to come to that decision, so
that is the pre application period from September to December.
In the period from December through to the hearing in October
2001, just under two years, there was an extensive exchange of
pleadings—the pleadings were very full and thorough—but
those closed effectively seven months after we had started. There
was then a period from June 2000 to October 2001 for the Court
to have the hearing. So there is a period of the Court's consideration
of the evidence and then the oral hearing which took a day, the
hearing before the Court took a day, and then between October
2001 and June 2002 there was the period for the Court to decide
upon and prepare its judgment. I cannot say with any certainty
at all that I know really what was happening in the period after
the close of pleadings up to the issue of the judgment other than
the hearing, because that was dealt with by the Court's own internal
processes. I can say and I am very pleased to say that when we
got to the hearing it was absolutely clear that the Court and
the judges were thoroughly aware and familiar with all of the
very complex issues which were involved. I was extremely impressed
by the judges' grasp of what had gone on. The economic arguments
and the different economic theories which were being discussed
and which had been dealt with through the pleadings were very
complex, and maybe I am doing judges down, for which I apologise,
but it did not strike me they were matters which judges would
automatically have such a keen grasp upon, but they clearly did
and they clearly asked very pertinent, very probing questions
in the one-day hearing. So the Court processes looking from, if
you like, the outside in were that the judges were well-prepared,
well-briefed and certainly very knowledgeable, and when they came
to make their decision they made a very strongly worded decision
which I have to say I believe was completely accurate—it
is always a good position to be in when you get a Court decision
which is in your favour!—and I was very impressed by that.
What was going on beneath the surface I am afraid I do not know
because there is no visibility to that, and maybe there should
not be any visibility to litigants as to what the Court is doing
in dealing with your case, but in the preparation, if you like,
of the pleadings and prior to the close of pleadings there was
a lot of exchange between the Commission and us which was very
full and thorough.
Q436 Chairman: Since your case they
have introduced fast-track procedures. Have you been sent the
copies of the evidence we have received?
Mr McMahon: I have had some.
Q437 Chairman: Have you had the transcripts?
Mr McMahon: I have had one or two of the transcripts
and I have had some of the written submissions by various organisations
and representative bodies.
Q438 Chairman: Then you will have
seen some reference to the fast-track procedures, but plainly
those were not working in your time, and were introduced later.
Mr McMahon: That is absolutely right.
Q439 Chairman: And gradually they
have introduced further accelerated procedures?
Mr McMahon: Yes.
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