Sabre and Farelogix: An Acquisition for Innovation or a Last Ditched Effort to Destroy a Rival?

The United States Justice Department (the“DOJ”) is doing everything it can to prevent the proposed acquisition of Farelogix Inc. (“Farelogix”) by Sabre Corporation (“Sabre”).  However, on November 14, 2018, Sabre announced it had entered into a $360 million agreement to acquire Farelogix. (Sabre).  Both companies provide information technology systems that allow airlines to sell tickets. (David McLaughlin, Bloomberg).  Sabre believes this acquisition will allow it to accelerate its plans to deliver “future-ready retailing, distribution and fulfillment solutions” that will unlock additional value in the airline industry. (Sabre).  The DOJ, however, believes Sabre is attempting to eliminate a disruptive competitor, and, the acquisition, if approved, will lead to higher prices and reduced quality in airlines. (David Shepardson, Reuters).

Sabre, based in Southlake, Texas, provides airlines with technology services for distribution and operations. Id. It is currently the largest global distribution system in the United States, with $3.9 billion in revenues in 2018. Id.  Farelogix, based in Miami, Florida, is a travel industry innovator with advanced offer management and New Distribution Capability (“NDC”) order delivery technology used by many of the world’s leading airlines.  NDC is a new standard for the travel industry that allows the adoption of XML- based data. (IATA). In 2018, its revenue was $42 million. Id.  By acquiring Farelogix, Sabre hopes to innovate and drive the travel industry to adopt the latest methods in sales by utilizing its online platform. (Sabre).  However, many, including the DOJ, question Sabre’s intentions as the company previously attempted to destroy Farelogix. 

Farelogix and Sabre have been competing over the same customers for several years. (Glen Hollister, Forbes). The competition between the two companies escalated to questionable business practices and name calling. Id. For instance, Jim Davidson, President and CEO of Farelogix, alleged Sabre’s lawyer attempted to impeach him via a shareholder action. (Farelogix). Despite the animosity between the two companies, Sabre has made a lot of promises to airlines and travel agencies regarding its adoption of IATA's NDC that Farelogix can help it keep.  Sabre has been slow to implement NDC, and it seems unprepared to accomplish its goals. (Glen Hollister, Forbes).  However, by acquiring Farelogix, and its sizable NDC capability, Sabre will be able to compete in the NDC race. Id.

The government is not convinced by Sabre’s reasoning for acquiring Farelogix. (David Shepardson, Rueters).  In August 2019, the Justice Department, under Antitrust Chief Makan Delrahim, filed a civil antitrust lawsuit seeking to block Sabre's acquisition. Id. The DOJ believes Sabre operates outdated technology and resists innovation. (The United States Department of Justice).  It believes Farelogix gained a foothold in booking services and is poised to grow because of its innovative approach to the travel industry. Id.  Additionally, The DOJ believes Sabre will eliminate its competitor, if the acquisition occurs, and will thus eliminate an innovative company that has changed the industry. This, they allege, will result in higher prices for travel consumers. Id. 

Sabre addressed the DOJ's complaint, arguing it is “publicly committed to the industry to extend any existing Farelogix contracts and any existing Sabre ... contracts on the same terms for a period of at least three years.” (Mike LaSusa, Law360).  Sabre stated it plans to purchase Farelogix so it can build a platform for its services that will allow Sabre to become competitive with its main rivals such as Amadeus IT Group SA, which has a NDC system. Id. Sabre says it does not see Farelogix as its competition and both companies see the acquisition as a mutual endeavor. Id.

A bench trial on this acquisition is expected on January 27, 2020 in a Delaware Federal Court. (Victoria Graham, Bloomberg). Currently, there is no information on how the court will address this issue, but it appears that the DOJ will do everything in its power to prevent the deal. Because this is the first time DOJ attorneys have appeared in federal court since they failed to unwind AT&T’s merger with Time Warner in February 2019, they will likely fight vigorously to prevent this latest allegedly anticompetitive action. Id.