On September 25, 2023, the European Commission (EC) blocked the proposed acquisition by Booking Holdings, Inc. of Flugo Group Holdings AB (eTraveli). This is the EC’s first prohibition of a transaction this year and its first-ever prohibition based solely on concerns regarding “conglomerate effects” identified by the EC—i.e., anticompetitive effects based neither on a horizontal overlap nor a vertical relationship between the merging parties.

The parties to the proposed acquisition, which was valued at €1.6 billion, are suppliers in adjacent markets: Booking is the leading online travel agency (OTA) for hotels (hotel OTA) in the European Economic Area (EEA), and eTraveli is one of the main providers of OTA services for flights (flight OTA) in Europe. The EC concluded that the transaction would have strengthened Booking’s dominant position in a market for hotel OTAs in the EEA, reducing competition and increasing prices for hotels and possibly for consumers.

The EC’s blocking decision and rejection of Booking’s proposed remedies

While the EC’s decision has not yet been published, its press release outlines several reasons why the EC decided to prohibit the transaction. These reasons all seem to relate to concerns about conglomerate effects or, as the EC terms them, “ecosystem concerns.”

First, the EC found that Booking is already the dominant hotel OTA in the EEA, with a market share above 60% and only one significant competitor. Moreover, it concluded that competing OTAs are unable to exert significant competitive pressure and Booking already “benefits from network effects as it has developed a significant scale in its hotel offering that, in turn, attracts an even larger number of consumers.” 

Second, the press release says that the proposed acquisition would have given Booking a “main customer acquisition channel,” flight OTA services. Flight OTA services are the second largest OTA market after hotel OTA. The EC found that eTraveli is the second-largest supplier of flight OTA services in Europe. 

Third, the EC was concerned that the transaction would have allowed Booking to expand its “travel services ecosystem,” making it more difficult for hotel OTA competitors to contest Booking’s dominant position in that market. Acquiring eTraveli, a flight OTA, would have bolstered Booking’s travel services ecosystem by enabling it to significantly increase traffic to its platform, and Booking would likely have captured a substantial portion of these new consumers for its hotel OTA. 

Fourth, the EC concluded that by increasing traffic to Booking’s platform and increasing Booking’s hotel OTA sales, the proposed transaction would have reinforced network effects and barriers to entry and expansion in the hotel OTA market.

To try to address the EC’s concerns, Booking offered behavioral remedies. The proposed remedies involved Booking giving customers an option to book hotels through Booking’s competing hotel OTAs on the eTraveli flight offerings screen. 

The EC concluded, however, that the proposed remedies were insufficient to address its competition concerns because they would have been too difficult to implement effectively and monitor in practice. The EC’s market test found: 

• There would have been a lack of transparency and potential discrimination in the selection and ranking of competing hotel OTAs’ offerings because a Booking subsidiary would have overseen aspects of the remedy implementation.
• Offerings from Booking’s competing hotel OTAs would have been presented only on eTraveli’s flight option screen and would not have given Booking’s competitors access to important cross-selling opportunities such as emails and notifications.

This is the EC’s first-ever prohibition based purely on an “ecosystem” theory of competitive harm. The EC is clearly signaling with this decision that it believes that the traditional theories of harm may no longer be adequate to assess the potential competitive harm of deals in dynamic markets such as tech markets.

CMA’s unconditional approval

The UK Competition Authority (CMA) also reviewed the proposed transaction and unconditionally cleared it almost one year ago. The divergence between the CMA and EC outcomes (not the first divergence in a merger case since Brexit) is apparently due, at least partly, to differing conditions in the UK and EU markets for OTA services. The US agencies did not challenge the acquisition (although it is uncertain whether a Hart-Scott-Rodino notification was required and eTraveli is less present in the United States).

End of story?

The EC’s prohibition is not the end of the story. A very interesting legal battle is coming.

Booking has already announced that it will appeal the EC’s decision to the EU General Court, alleging the EC has not proven that the transaction would have created a threat of anticompetitive foreclosure and that the decision is wrong on both the facts and the application of the EC’s guidelines on non-horizontal mergers. Booking claims that the EC wrongly assumed that any increase in Booking’s hotel OTA market share would automatically result in a significant impediment to effective competition and that the EC failed to prove such an effect. The EC has a mixed record in defending its merger decisions in the EU courts, although it has recently achieved some significant victories.

Practical considerations of the EC prohibition decision

The EC’s decision reflects a new type of aggressiveness in blocking mergers on non-horizontal grounds, especially in rapidly evolving sectors such as the technology and digital industries. Companies contemplating non-horizontal mergers must be aware of the EC’s potentially skeptical position and be prepared to present compelling arguments supporting their transactions and rebutting any potential “ecosystem” concerns.

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The authors would like to thank Antonio Marzano for his assistance in preparing this alert.