The formal announcement today of the proposed American Airlines Inc. and U.S. Airways Group Inc. merger puts another big item on new Antitrust Division leader Bill Baer’s plate, though this deal is expected to pose few hurdles.
Baer, who was confirmed as Assistant Attorney General by the Senate on Dec. 30, made his first big move last month in announcing the DOJ would file a lawsuit to block beer giant Anheuser-Busch InBev’s proposed $20 billion acquisition of the half of Mexico’s Grupo Modelo that it didn’t already own.
Today, the beer makers announced a major concession to try to win approval of their merger, saying AB InBev would divest the U.S. business of Modelo and sell a major brewery in the border town of Piedras Negras, Mexico, to wine company Constellation Brands.
The airline merger is opposed by the non-profit think tank American Antitrust Institute, which released a white paper last August arguing it would reduce competition on flight routes and reduce travel options for smaller communities. The combined company would have an equity value of approximately $11 billion, according to a press release issued today.
But McDermott, Will & Emery’s Alison Smith, a former deputy assistant attorney general in the Antitrust Division and lawyer now at McDermott, told the Charlotte Business Journal she didn’t expect major competition concerns from the Department of Justice.
“The question in merger analysis is: What is the effect of competition on the relevant market? (Regulators) look at specific routes and ask whether there is significant competition,” Alison told the business newspaper.
U.S. Airways hubs are in Charlotte, N.C., Philadelphia and Phoenix. American Airlines concentrates its routes out of Dallas-Fort Worth, Chicago, Miami and Los Angeles.
American, owned by AMR Corporation, filed for Chapter 11 protection from creditors in 2011 and remains in bankruptcy court. U.S. Airlines recently reported profit of $637 million on revenue of $13.8 billion. American reported net loss of $1.9 billion on revenues of $25 billion in 2012.
American’s creditors in the all-stock deal will own 72 percent of the combined company and hold five seats on the 12-member board, Reuters reported.
The airlines must file for approval with European and other national competition regulators, though the deal is also expected to pass reviews abroad as well.
Weil, Gotshal & Manges LLP, Jones Day, Paul Hastings, Debevoise & Plimpton LLP and K&L Gates LLP are serving as legal counsel to American in the deal. U.S. Airways is represented by Lathan & Watkins LLP; O’Melveny & Myers LLP; Cadwalader Wickersham & Taft LLP and Dechert LLP.
The Department of Justice hasn’t tried to block an airline merger since 2001, when United Airlines tried to combine with U.S. Airways. That deal was called off hours after the Justice Department threatened to file a lawsuit to stop it.
United eventually merged with Continential Airlines in 2010, but has since struggled to integrate the its computer and reservation systems.