After thorough analysis of the content and implications of the resolution of the Tribunal de Defensa de la Libre Competencia de Chile (TDLC), Chile’s antitrust court, regarding the merger process between LAN Airlines S.A. (LAN) (NYSE: LFL/IPSA: LAN) and TAM S.A. (TAM) (BM&FBOVESPA: TAMM4/NYSE: TAM), the Boards of Directors of both companies have confirmed their decision to move forward with the transaction.
LAN and TAM believe the mitigation measures imposed by the TDLC do not significantly impact the synergies generated by the transaction and do not modify in any material respect the companies’ joint strategic development plans. From the analysis, 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 3, 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:1.- 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. 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; 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