European turbulence for CVC after Aer Lingus win

Last week saw a legal victory, which could potentially complicate corporate venturing in Europe, if the UK ruling influences an important legal review going on in Brussels. 

The UK’s Competition Commission found last week that Ireland-based airline Ryanair’s minority stake in Aer Lingus allows it to materially influence Irish rival Aer Lingus in an anticompetitive manner. Ryanair said it would appeal the ruling, which it labelled “baseless’.

Alec Burnside, counsel to Aer Lingus and managing partner of US-based law firm Cadwalader, Wickersham and Taft’s Brussels office, said: “Ryanair’s 29.82% shareholding has been used as a Trojan horse against Aer Lingus for the last seven years since the original 2006 bid.  It has been the platform for Ryanair’s failed rebids for Aer Lingus in 2008 and 2012. The CC has now found that those rebids have harmed competition between the two rivals. “ Burnside said the holding of Ryanair in Aer Lingus had locked Aer Lingus out of the mergers and acquisition market at the same time as the airline industry has been consolidating.

The controversy over the case has been a partial trigger for the European Commission to consider upgrading its competition powers so it can review acquisitions of non-controlling minority shareholdings. 

Burnside said: “The European Commission needs jurisdiction to scrutinise and protect businesses from anti-competitive minority shareholder situations like this one.”

He added:  “This is going to be relevant to corporate venturing generally.” 

Burnside explained:  “The whole business of minority shareholdings is problematic. The European Commission found it didn’t have power to deal with [Ryanair’s stake in Aer Lingus], and so they have opened a consultation to deal with minority shareholdings.”

Burnside added: “I would not say this is the only problem situation. The Commission is focused on companies cuddling up to each other and not competing as hard as they should, against the interest of you and me as their customers.” In sum corporates investing in start-ups in a sector, with limited competition besides the corporate and the start-up, could well be in the European Commission’s sites.

This EU review is one to watch, and Aer Lingus’ legal victory last week may bring more attention to this review, which lawyers like Burnside and UK law firm SJ Berwin in an earlier note, have signalled “could have a significant impact on growth capital”