ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
Mergers & Acquisitions
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McDermott’s Antitrust M&A Snapshot Published on July 17, 2016

by , and | Jul 27, 2016 | , , , , , ,

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

United States: January – June Update

The Federal Trade Commission (FTC) and US Department of Justice (DOJ) have been actively challenging mergers and acquisitions in the first half of 2016. In some instances, the parties abandoned their deal once the FTC or DOJ issued a complaint, in others, the parties entered into consent agreements with the agencies. In matters where a divestiture is an acceptable remedy, the FTC and DOJ have required robust divestitures with financially and competitively viable buyers. There is increasing pressure for broad divestitures and for upfront buyers in industries where the agencies do not have ample experience and where there may not be multiple competitive buyers willing to acquire the assets.

In merger challenges, the agencies have been successful in obtaining preliminary injunctions in Washington, DC, but have been less successful outside of their home court. The agencies have successfully argued price discrimination markets, where sales of products to a narrow group of customers were the market, and courts are accepting the agencies’ narrow market definition. We also see a trend in challenges due to innovation, where the merging parties are the market leaders in new developments and research and development in particular areas. Investigations continue to take many months, with many approaching or exceeding a year.

EU: January – June Update

In the EU, there has been a noticeable increase in the number of notified transactions to the European Commission (from 277 notifications in 2013 to 337 in 2015). Most of these transactions have been cleared by the EU regulator in Phase I without any commitments. However, there have still been a number of antitrust interventions requiring the merging parties to offer, often far-reaching, remedies. One industry has recently seen a particularly high ratio of antitrust intervention is the telecoms sector. For example, in the merger between the mobile operators Telenor and TeliaSonera, the parties abandoned the transaction due to European Commission opposition to the transaction. The European Commission publicly announced that the transaction would not have been cleared, and that the remedies offered by the companies were not convincing. A prohibition decision was also issued, despite the offered remedies, in the failed combination of Telefónica UK’s “O2” and Hutchison 3G UK’s “Three”. This transaction involved the longest merger control review by the European Commission to end up in a prohibition decision (243 calendar days, compared to the average of 157 calendar days to block a deal).

With regard to current trends in merger control remedies at the level of the European Commission, there continues to be [...]

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Lessons Learned – The State of Affairs in US Merger Review

by , , , and | May 18, 2016 | , ,

In the last year, the US antitrust regulators successfully challenged multiple transactions in court and forced companies to abandon several other transactions as a result of threatened enforcement actions. Looking back at the different cases, there are some trends that we see developing in the government’s positioning on mergers, and these should be kept in mind as parties contemplate mergers and acquisitions moving forward.

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District Court Blocks FTC and PA AG Challenge to Hershey-Pinnacle Merger

by | May 17, 2016 | , ,

On May 9, 2016, the US District Court for the Middle District of Pennsylvania denied the motion by the Federal Trade Commission and Pennsylvania Office of Attorney General for a preliminary injunction to enjoin the merger of Penn State Hershey Medical Center and PinnacleHealth System. The decision ends a string of victories by the FTC in recent health care merger litigation.

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FTC Emphasizes Competitive Issues Arising From Partial Interest Acquisitions

by | May 11, 2016 | ,

On May 9, the Federal Trade Commission (FTC) posted an article summarizing recent developments and areas of competitive sensitivity in the acquisition of partial equity interests.  Most antitrust challenges to mergers or acquisitions involve situations in which an acquiror takes control of the target company.  However, substantive antitrust issues also can arise from acquisitions of less than controlling interests.  The FTC has previously sought substantial remedies in acquisitions of minority interests in a competitor.  These remedies have included imposing firewalls, altering companies’ ownership interests to become passive investors, or seeking divestitures.

The FTC’s post, which can be found here, outlines three ways in which partial-interest acquisitions in a competitor could lessen competition.  First, an entity could use its interest—through representatives on a competitor’s board, for example—to affect decisions of the target.  Second, an acquiring company’s partial ownership in its competitor could reduce the acquiring company’s incentives to compete aggressively.  This feature arises because, by virtue of holding an interest in its rival, a company can still achieve an economic gain even if it does not win a competition or make a sale if the company in which it holds an equity interest obtains that business.  Third, an entity could gain access to non-public, competitively sensitive information of its competitor, increasing the risk of coordinated conduct.

None of these theories are new, and they are contained in the 2010 FTC / DOJ Horizontal Merger Guidelines.  Nevertheless, the FTC’s posting provides a helpful reminder for companies contemplating transactions that they need to evaluate not only the obvious anticompetitive effects raised by acquisitions of control, but also the less obvious theories of competitive harm.



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EU: Merger case cleared following offer of FRAND technology license

by | Apr 25, 2016 | , , , ,

On 20 April 2016, the European Commission (Commission) cleared, under its merger control rules, the acquisition of Equens and PaySquare by Worldline subject to, amongst others, a commitment to license technology to any customer interested, at Fair, Reasonable and Non-Discriminatory (FRAND) conditions.

Worldline is a French provider of payment services and terminals, financial processing and software licensing and e-transactions services. Equens offers a number of services across the value chain of both payments processing and cards processing services. Its fully-owned subsidiary, PaySquare, provides merchant acquiring services.  This transaction combines two large payment systems operators, active across the full value chain in both payment processing and card processing services.

The EU antitrust regulator was concerned that the acquisition would have raised certain issues with respect to, in particular, merchant acquiring services in Germany.  The Commission’s market investigation revealed that Worldline’s Poseidon software and modules are used by the majority of German network service providers (including PaySquare), there are no other readily available alternatives to Poseidon and post-transaction, Worldline would have the ability and the incentives to favour its new subsidiary PaySquare, in terms of price and quality, over other network service providers relying on Poseidon.

In order to address the Commission’s concerns, the companies offered a commitment to grant licenses for the Poseidon software on FRAND terms during a period of 10 years. Specifically, this commitment consists of the following elements:

  • The granting of a license for Poseidon and its modules to third-party network service providers under FRAND terms and capping of the maintenance fees
  • A monitoring mechanism to ensure compliance with FRAND terms by a licensing trustee and by a group composed of network service providers
  • Giving access to the Poseidon source code under certain conditions
  • Transferring the governance of the ZVT protocol, on which most German point of sale terminals run, to an independent not for profit industry organisation

The Commission’s decision to accept this commitment is interesting for a number reasons; the Commission generally has a strong preference for structural rather than behavioural undertakings, FRAND obligations are typically applicable to technologies that are standardised, and this case presents the first time that a commitment to licence on FRAND terms has been used as a remedy under the EU Merger Regulation.



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House Passes GOP-Backed SMARTER ACT Aiming to Harmonize Merger Review Process for FTC and DOJ

by | Apr 4, 2016 | , ,

On March 23, 2016, the U.S. House of Representatives passed the Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act by a vote of 235-171, despite strenuous objections from the Federal Trade Commission (FTC).  The FTC and the Department of Justice (DOJ) review proposed mergers and acquisitions.  Currently, the FTC can challenge transactions under different processes and standards than the DOJ, and those procedures provide several advantages to the FTC.  The SMARTER Act would neutralize those advantages for the FTC by: (1) eliminating the FTC’s ability to use its internal administrative proceedings to challenge unconsummated transactions; and (2) standardizing the criteria for the FTC and DOJ to obtain a preliminary injunction to block a merger in federal court.

The FTC has the authority to pursue administrative relief to challenge a transaction.  Even if the FTC is denied a preliminary injunction in federal court, the agency may continue to seek to block or unwind a transaction in an administrative trial at the FTC’s own in-house court.  That process creates two procedural advantages for the FTC.  First, the FTC can continue to challenge a transaction even after a federal district court denies an injunction.  Second, because the full trial will take place in the FTC’s court, some courts have said that the the standard the FTC uses to obtain a federal court injunction is lower than the standard the DOJ must meet.  The courts will generally grant the FTC an injunction if the case “raise[s] questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground” for a full hearing “by the FTC in the first instance and ultimately by the Court of Appeals.”  Under that standard, the FTC need not show a substantial likelihood of success at the trial on the merits or irreparable harm.

The DOJ can only challenge transactions in federal court proceedings.  The DOJ can seek a preliminary injunction under Section 15 of the Clayton Act (15 U.S.C. § 25) on the grounds that the transaction is likely to substantially lessen competition.  The DOJ is subject to a traditional equitable injunction standard including criteria such as a showing of a substantial likelihood of success and the potential for irreparable harm.

Supporters of the SMARTER Act argue that reform is necessary to ensure consistent and fair application of the antitrust laws.  SMARTER Act supporters also argue that courts apply a more lenient standard to the FTC for blocking a transaction than to the DOJ.  However, those that oppose the SMARTER Act argue that in practice, courts impose the same standards on the FTC and DOJ during injunction hearings.  Those against the SMARTER Act also argue that workload statistics compiled in the DOJ and FTC Annual Competition Reports actually demonstrate that mergers reviewed by the DOJ are more likely to be challenged or receive a Second Request than mergers reviewed by the FTC.  FTC Chairwoman Edith Ramirez expressed concern that the SMARTER Act “risks undermining the effectiveness of the FTC.”  Chairwoman Ramirez also [...]

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Dutch Competition Authority Fines Cold-Storage Companies for Exchange of Information in the Context of Merger Talks

by | Mar 31, 2016 | ,

On 23 March 2016, the Netherlands Authority for Consumers and Markets (ACM) announced that it had fined four cold-storage firms for having put in place anticompetitive arrangements while in extended merger talks with one another.  (case number: 13.0698.31|15.0710.31|15.0327.31|15.0328.31). In addition, ACM fined five individuals for their personal involvement in these anticompetitive arrangements. The case at hand serves as a reminder that gun jumping, which is seen as an infringement of the merger control rules, is not the only antitrust risk associated with an M&A transaction.

While in discussions about a possible merger between them, the cold-storage firms frequently exchanged commercially sensitive information such as the price for food storage, current utilization rates of their storage facilities and whether or not they were looking for work. This information exchange, which took place between 2006 and 2009, sometimes resulted in price fixing, customer allocation or bid rigging. (more…)



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Update: Peculiarities of the Merger Filing Requirements in Germany and Austria

by | Mar 18, 2016 | , ,

As many dealmakers doing business in Europe have realized, German and Austrian merger filing requirements are sometimes a bit tricky, and in some respects different from the rules in place at EU level and in other EU member states. For instance, it may be that a transaction has to be notified in one of these two countries although the transaction leads to a mere minority shareholding or one of the undertakings involved achieved (almost) no local turnover.

In this context, it should be noted that companies violating a filing obligation are subject to appreciable fines and run the risk that the closing acts of the transaction are null and void under civil law. Particularly after the recent Spar decision of the Austrian Supreme Cartel Court, which led to a tenfold increase of the fine originally imposed by the Austrian Cartel Court, it can be expected that the amount of fines for competition law breaches will generally increase in Austria. Against this background, it is worth noting some existing peculiarities and some new developments regarding the filing thresholds:

(more…)



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Italian Competition Authority Updates Merger Control Turnover Thresholds

by | Mar 15, 2016 | ,

The Italian Competition Authority has updated its merger control turnover thresholds. Effective 14 March 2016, Section 16(1) of Law no. 287 of 10 October 1990 requires prior notification of all mergers and acquisitions where both the following conditions are fulfilled:

  • Aggregate turnover in Italy of all undertakings involved is above € 495 million (revised under the terms of the same Section 16(1)); and
  • Aggregate turnover in Italy of the target company is above € 50 million (as revised)

Italy’s merger control thresholds are adjusted annually to take into account increases in the GDP deflator index. The updated thresholds will be published in the Competition Authority’s Bulletin once this increase in index is announced officially.



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FTC’s Feinstein Declines to Provide Safe Harbor Guidance for Low GUPPIs

by | Mar 4, 2016 | ,

At a recent panel discussion during George Mason Law Review’s annual antitrust symposium, Deborah Feinstein, director of the Federal Trade Commission’s (FTC) Bureau of Competition, was asked what levels of gross upwards pricing pressure index (GUPPI) could raise concern in the FTC’s merger review process.  Feinstein declined to provide a specific level that would raise concern, thereby rejecting movement towards a safe harbor for merging parties in markets where the GUPPI is particularly low.

The FTC’s policy regarding a GUPPI safe harbor has a substantial impact on its investigations of mergers with potential unilateral price effects.  Generally unilateral price effects exist where the merged entity has the incentive to raise the price of the products of one or both firms.  One way to conceptualize the potential unilateral effects of a merger is to consider the opposing forces of downwards and upwards pricing pressures.  The elimination of competition between merging firms creates upwards pricing pressure.  The benefits gained from efficiencies generate downward pricing pressure.  GUPPI is an economic measure that attempts to estimate the upwards pricing pressure for a particular product resulting from a merger.  Three market conditions lead to a higher GUPPI: 1) a high diversion ratio to the merging partner’s product; 2) a higher margin for the merging partner’s product; and 3) a higher price for the merging partner’s product (Moresi 2010). (more…)



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