5-Oct-2011 12:29 PM

LAN and TAM agree to continue with merger and aim for 1Q2011 completion

LAN and TAM's board of directors agreed (04-Oct-2011) to continue with the merger and aim for completion by the end of 1Q2012. The decision comes after thorough analysis of the content and implications of the resolution of Chile’s antitrust court, the Tribunal de Defensa de la Libre Competencia de Chile (TDLC).

  • After analysing the resolution of the antitrust court, LAN and TAM expect the measures not to significantly affect the estimated synergies nor the future strategic development of LATAM Group;
  • Although the mitigation measures are broadly in line with those LAN and TAM were willing to accept in the consultation process, the companies consider that three of the measures are illegal and unconstitutional in certain aspects, and they have resolved to appeal these measures before the Supreme Court of Chile;
  • The companies believe the appeal will not prevent them from continuing with the merger process, subject to the final resolution of the Supreme Court, and therefore believe the appeal process will not delay LAN and TAM’s plans bring the transaction into effect, which the companies believe can be concluded towards the end of 1Q2012.

The mitigation measures considered in the judgment by the TDLC are broadly in line with the measures that LAN and TAM were prepared to accept in Jan-2011 in the out-of-court settlement negotiated with Chile’s antitrust authority, Fiscalía Nacional Económica. Nevertheless, on 03-Oct-2011, LAN and TAM presented an appeal before the Supreme Court objecting to three of the mitigation measures, which the companies deem unconstitutional and disproportionately severe. The three measures being appealed are:

1. The seventh condition, which establishes the obligation to submit for approval ex-ante certain codeshare agreements that LATAM Group may have reached with airlines outside of its chosen alliance. This is unnecessary considering the existence of an alternative measure, which requires the company to inform the FNE of all such agreements so that it may analyse and determine if they are detrimental to the competitive environment;

2. The eight condition, which establishes the obligation to give up four fifth freedom rights to Lima, Peru. This condition goes against a 2009 ruling of the Supreme Court, which overturned a previous ruling of the TDLC which attempted to impose measures that would have had the same impact; and

3. The fourteenth condition, which provides excessive intrusive powers to the FNE and to the consultant that the TDLC requires the company to hire to collaborate in the surveillance process. The company considers that the proposed “unrestricted, total, permanent and continuous” access that this consultant would have, both in and outside of Chile, to LATAM Group’s data bases, systems, accounting, installations, offices, call centers and others, is unlimited and differs from what is provided for by law since it lacks previous judicial controls and is therefore illegal in that it affects constitutional rights. [more - original PR] [more - original PR - LAN]

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