Every agency recently had
to sign a document consenting to a revised agreement with ARC that
became effective May 5. Are there any surprises in the
revisions?
A: The new agreement contains an unheralded and
unpleasant surprise. Until now, it has not been a violation of the
ARC agreement for one agency to acquire another one before ARC's
approval of the acquisition.
In my experience, most buyers and sellers go to closing first
and then apply for ARC approval at their convenience.
Section XX.A.1. of the new agreement now says that changes of
ownership that require ARC approval -- for example, the sale of an
agency's assets or 30% or more of the agency's stock, while
maintaining the agency location -- now require prior approval.
Lest you think that ARC is a paper tiger, the new agreement goes
on to say that if you jump the gun and close on an acquisition
before ARC approves, then the selling owners and the buyer's owners
must all sign personal guarantees of the selling agency's liability
to ARC.
The guarantees will stay in effect until ARC approves the change
of ownership, which could take months.
As of now, ARC's change-of-ownership application forms do not
ask whether the change already has taken place, so it is unclear
how ARC would find out. However, I assume ARC will be changing its
forms to ask this question.
The trouble with the new rule is that, in the real world, ARC
often takes a long time to approve a change of ownership and, more
importantly, the number of days or weeks is unpredictable.
In cases where the buyer is from outside the travel agency
business, ARC can take 90 days or more to approve the
application.
Having to apply in advance increases of risk of premature
disclosure of the pending sale. ARC circulates an application
bulletin to all carriers, which can cause carrier reps to start
gossiping about the acquisition before you are ready to disclose
it.
Premature disclosure can hurt the acquired company's
relationships with employees and clients.
By requiring prior approval, ARC is acting like a government
agency such as the Justice Department or Federal Trade Commission,
which require prior approval of some mergers and acquisitions. No
wonder many travel agents think ARC is a government agency.
One way around ARC's rule is to cancel the seller's ARC
appointment and change the location of an underutilized
branch-office appointment to the seller's location. ARC could not
stop you from doing that.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the TravelWeekly.com
Legal Ease forum. To contact Mark directly, e-mail him at [email protected].