LAN-TAM merger continues despite objections

6th Oct 2011
LAN-TAM merger continues despite objections

Directors at LAN Airlines and TAM Airlines of Brazil have reiterated their desire to move forward with a planned merger, despite objections from the Tribunal de Defensa de la Libre Competencia de Chile (TDLC).

The news comes as anti-trust regulators in Spain approve the deal.

LAN and TAM believe the mitigation measures imposed by the TDLC – Chile’s anti-trust regulator - do not “significantly impact” the synergies generated by the transaction and do not modify in any material respect the companies’ joint strategic development plans.

Following analysis carried out by the airlines the estimated impact on the expected synergies would not exceed US$10 million per year, reducing by such amount the total previously announced synergies of US$400 million.

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 January 2011 in the out-of-court settlement negotiated with the Fiscalía Nacional Económica (FNE), Chile’s antitrust authority.

Nevertheless, on October 3rd, LAN and TAM presented an appeal before the Supreme Court objecting three of the mitigation measures which the companies deem to be unconstitutional and disproportionately severe. 

The three measures being appealed are:

  • The seventh condition, which establishes the obligation to submit for approval ex – ante certain code share agreements that LATAM Group may have reached with airlines outside of its chosen alliance.

    LATAM argues 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 analyze and determine if they are detrimental to the competitive environment.

  • 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, argues LATAM.

  • 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 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 centres 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.

    In its appeals before the Supreme Court, LATAM is highlighted that the seventh and fourteenth measures have legitimate legal and constitutional alternatives which are in accordance with the underlying spirit of the measures proposed by the TDLC.

    “LAN and TAM confirm their commitment to implement the merger in the shortest possible timeframe, which they expect to be towards the end of the first quarter 2012,” explained a statement.

    “It is important to highlight that LAN and TAM plan to move forward, in parallel with the Supreme Court appeal process, with the various regulatory and corporate authorisations that are still required to complete the transaction.”

    Chilean airline PAL earlier this week attempted to scupper the deal with an appeal to the Chilean high court.


    The National Competition Commission (CNC) in Spain earlier approved the tie-up without conditions.

    “This represents an important step for the merger between LAN and TAM, and this completes the process of approvals in Europe, which brings us ever closer to being able to complete the merger by the end of the first quarter of 2012,” LAN said in a statement.


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