Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 460-479)

MR GREG MCMAHON AND MR JAMES JENNINGS

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 it further.

  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 premium—I 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 submitted.

  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 indications.

  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 whole procedure?

  Mr McMahon: That is a very difficult question to answer.

  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 conditions.

  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 apologise—

  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 with it.

  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 process—and I only ask—was 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.


 
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