US justice department moves to block Sabre acquisition of Farelogix

21 Aug 2019152 Views

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Sabre’s proposed acquisition of Farelogix may not fly as the US Department of Justice files a lawsuit to block the move.

Travel technology firm Sabre may not be allowed to execute the $360m deal it brokered last November to acquire Farelogix Inc. The US Department of Justice (DoJ) filed a lawsuit on Tuesday (20 August) to block the acquisition, saying that it was a “dominant firm’s attempt to eliminate a disruptive competitor”.

The investigation has been spurred in part by leaked texts traded between Sabre executives that imply the firm knew that the acquisition would be anti-competitive. On the day the acquisition was agreed, the DoJ alleges, Sabre’s chief sales officer texted a colleague and said one major US airline would “hate” it, to which the colleague allegedly replied, “Why, because it entrenches us more?”.

Similarly, a Farelogix executive allegedly observed that buying the company would allow Sabre to “[take] out a strong competitor vs continued competition and price pressure”.

The complaint further claims that Sabre had made previous attempts to “shut down Farelogix” and that Farelogix has long complained about Sabre’s tactics, which allegedly sought to stifle competition and “[wield] its monopoly power”.

The suit, filed in the US District Court in Delaware, says that the firms compete head-to-head to provide booking services to airlines, and that if the acquisition were to proceed it “would likely result in higher prices, reduced quality, and less innovation for airlines and [consumers]”. It also says that Sabre is the dominant provider of booking services in the US and that it has “operated outdated technology and resisted innovation” for many years.

Sabre maintains that the services between the companies are complementary as opposed to competitive, and that this claim from the Department of Justice has been inspired by a “fundamental misunderstanding of the industry”.

Texas-based Sabre boasted 2018 revenues of $3.9bn, while Miami firm Farelogix had $42m in revenue last year. While Sabre had previously pledged to close the deal this week, it has now agreed to extend the termination date to 30 April 2020 to allow time for DoJ challenges to be resolved.

Antitrust investigations

The news comes just as the DoJ announced that it is partnering with more than a dozen state attorneys general as it proceeds with its probe into major technology companies such as Alphabet’s Google, Amazon, Apple and Facebook.

Speaking at a tech conference in Colorado this week, the department’s antitrust chief, Makan Delrahim, revealed that the government is looking into previously approved acquisitions as part of a broader review of players in the tech space.

Commentators have noted that shoring up support from states can be vital in building evidence and public support for these investigations, and was a pattern in the antitrust case made against Microsoft in 1998.

Yet many have also pointed out that this kind of investigation is likely to take years and that the scope is wide-ranging, which could prove to be a major impediment.

Tensions ran high last month when representatives from Facebook, Google, Amazon and Apple were questioned at the House subcommittee on antitrust, in which an Ohio senator, Sherrod Brown, said Facebook showed “breathtaking arrogance” in attempting to launch its controversial digital currency Libra.

This meeting came just after the US Federal Trade Commission meted out one of its largest fines on record, $5bn, to Facebook for its role in the Cambridge Analytica scandal.

Eva Short is a Journalist at Siliconrepublic.com

editorial@siliconrepublic.com