Examination of Witnesses (Questions 460-479)|
24 JANUARY 2007
Q460 Lord Leach of Fairford: In this
process, obviously the defending company is going to try and spin
it out as long as possible knowing that the bid is likely to lapse
if it is an unwelcome bid. Did they treat it as a welcome bid
or as a hostile bid?
Mr McMahon: It was neither recommended nor rejected;
it was just not welcome. I think that is the best description
I can give.
Q461 Lord Leach of Fairford: So were
they active in trying to get it rejected, or did you see any activity
by the advisers during the appeal process, for example? You said
there was no visibility, or little, and I wonder whether there
was any visibility on that?
Mr McMahon: Not that I can speak of, no. I do
not believe there was.
Q462 Lord Leach of Fairford: So the
whole thing was entirely in the hands of the Court? It had moved
to a different mode, is that the way you are portraying it?
Mr McMahon: It was in the hands of the Commission
during the summer of 1999 and then, once they had issued their
decision in September 1999, it was up to us if we wanted to take
Q463 Lord Burnett: For those of us
who are not au fait with the history of it, commercially what
was the disparity in money?
Mr McMahon: Disparity in money?
Q464 Lord Burnett: The offer price.
Mr McMahon: We were offering a premiumI
know that the Kuoni transaction was a nil premium merger, and
from memory our premium was something like
Mr Jennings: Approximately 35 per cent.
Q465 Lord Burnett: So, a big advantage
to go with you.
Mr Jennings: It was an all share offer, and
at the date of announcement the calculated premium was approximately
35 per cent. I cannot remember exactly but it was certainly mid-30s.
Q466 Lord Leach of Fairford: Did
the other side put in submissions to the Commission, and were
they supportive, neutral or negative?
Mr McMahon: The submissions to the Commission
I think were confidential, so we do not know what they said.
Q467 Lord Leach of Fairford: So you
presume that First Choice put in something to the Commission but
you do not know what the general tendency of their submissions
was, is that fair?
Mr McMahon: If I were in their position I would
have put a submission in.
Q468 Lord Leach of Fairford: Would
it have been pro, neutral or negative, if you had been them?
Mr McMahon: It would depend upon the view which
my board took of whether this was a welcome transaction.
Q469 Lord Leach of Fairford: Of which
you had a very good idea?
Mr McMahon: But I cannot say what they actually
said. It would be incorrect of me to speculate what they actually
Q470 Lord Clinton-Davis: In this
inordinately long process did you make, or authorise anybody to
make, representation through individual Commissioners or to the
Directorate General? If so, to whom and in what terms? And did
you make any representation to the European Parliament?
Mr McMahon: I cannot recall whether any individual
representations were made. I do not believe we made any representation
to the Parliament; I do not believe we made any representation
formally to individual Commissioners. There were quite a lot of
people involved in this bid process and not many of them are still
with the company, so I have not been able really to go through
that kind of detail. I am not aware of any detailed representations
being made. We may have had a conversation with the Office of
Fair Trading about jurisdiction, for example, which would be a
perfectly normal thing to do, and whether the Office of Fair Trading
was considering whether it had jurisdiction, but I am not aware
of anything else and I would be misleading you if I gave any further
Q471 Baroness Kingsmill: Could you
give me a flavour of what has happened to your share price over
this process, and I suppose to what extent you relate it to this
Mr McMahon: That is a very difficult question
Q472 Baroness Kingsmill: It is impossible
to say, I know, but I would be interested to know.
Mr McMahon: It is a matter of absolute clear
public record that in 2002, following this decision coming out,
we had some accounting problems which came to light and thereafter
the share price in MyTravel decreased significantly. It is a matter
of public record that in 2003 we had some financial problems and
we ended up with a significant debt-for-equity exchange which
was finalised in December 2004, at which stage the financial creditors
of the company effectively received 96 per cent of the equity
of the company and the original shareholders were left with approximately
4 per cent. There are a lot of anecdotal views that if we had
been successful with our bid for First Choice then the financial
difficulties would not have arisen; I think that is highly likely
but I do not think you can draw a direct inference from the fact
that the Commission prohibited a transaction in 1999 to the fact
we had financial difficulties in 2002 through to 2004. Had we
been a bigger and stronger organisation in 2002/2003/2004 maybe
we would have been better able to weather the storm. That I think
is the best way to describe it.
Mr Jennings: Between September 1999 and June
2002 when the decision was annulled there were a number of changes
obviously in the market place but also in the relative positions
of Airtours, which became MyTravel, and First Choice. MyTravel
had moved into different geographical markets so following the
trading and market problems that followed from the 9/11 attacks
by June 2002 MyTravel was relatively in a much weaker position
and was not in a position to have considered renewing its bid
at that stage. In 1999 the relative size of the companies by reference
to market capitalisation was roughly 2:1, so Airtours by reference
to its stock market value was roughly twice the size of First
Choice. By June 2002 the ratio was probably something like 55:45,
which reflected the performance and trading of the two businesses
over that period of time and took into account the effect of market
Mr McMahon: If I may just add to that, I think
it would not be appropriate to ignore the impact on the industry
of the September/11 problems which occurred following the prohibition
decision but before that decision was annulled.
Q473 Chairman: That would have put
a dampener on any aspiration to acquire other companies in any
event, would it?
Mr McMahon: In June 2002 the tourism industry
was in a significantly different state than it had been in 1999.
Q474 Lord Leach of Fairford: At what
stage did you actually decide not to proceed regardless of the
outcome of your regulatory appeal to the CFI? Presumably some
time between October 2001, and you may have mentioned this but
I do not think so, and June 2002 you decided that, regardless
of the outcome of that, you would not bid, I imagine?
Mr McMahon: If I gave that impression then I
Q475 Lord Leach of Fairford: No,
no. I am asking neutrally.
Mr McMahon: Once the transaction was prohibited
in September 1999 we could not have rebid until that prohibition
order was removed, and we thought that we probably could not purchase
any other large operator in the European market either. The risk
was too great that that too would be prohibited. So we were prohibited
from trying to buy the target business whilst that prohibition
order stood, so there was nothing we could do until 2002. By the
time the decision came out in 2002, and we did not know until
it came out which way it would go, the world had moved on and
it was no longer appropriate for us to even consider it. We had
our decision but by then it was far too late for us to do anything
Q476 Lord Leach of Fairford: But
I am trying to unscramble the purely regulatory aspects to this
to the business aspects. The business aspects are obviously very
important and the regulatory ones are also. When you applied for
an annulment of the prohibition, that was not just out of a sense
of outrage that it was a bad decision, was it? You at that stage
hoped to reinstate the bid?
Mr McMahon: I think if the process had been
such that a rapid decision had been forthcoming from the Court
Q477 Lord Leach of Fairford: This
is the point.
Mr McMahon: then we may well have considered
making another attempt to buy it.
Q478 Lord Leach of Fairford: Despite
the fact that this came after 9/11?
Mr McMahon: I genuinely do not know because
when we were making the decision should we make an appeal in December
1999 we did not know how long it would take. Very few people at
that stage had ever made an application for an annulment of a
prohibition decision, and I think ours might have been the first
ever annulment of a prohibition decision, so nobody knew how long
it would take, and clearly by the time it did come out in 2002
everything was significantly different. We did not know until
it came out which way it was going to go but, frankly, by the
spring of 2002, even if we knew then that we were going to get
the right decision, by then things would have moved on such that
we were not going to bother.
Q479 Lord Leach of Fairford: That
is very helpful, thank you. The point is that our chief concern
is the speed of the appeal hearing process and if, in fact, the
Court thought there was no pressure whatsoever, let alone that
there was no fast-track procedure then in place, and that the
whole thing was purely academic and there had been 9/11, there
were signs of financial trouble, the whole world, as you said,
had moved on, it may be that the processand I only askwas
not particularly hastened because nobody could see any great need
for hastening it? Or would that be quite wrong?
Mr McMahon: I am absolutely convinced that the
board would not have decided to spend the money on the annulment
application and spend the time and resources on doing that just
to prove a point. We wanted to clarify whether or not this decision
was right, whether it prevented us going back to do this transaction
or another, should that opportunity present itself in the future.
We were not just doing this as an academic exercise. I do not
believe the Court regarded it as an academic exercise, and their
judgment made it quite clear that they were concerned about the
way the matter had been dealt with.