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Mergers & Acquisitions

Four FTC Commissioners Reject Wright’s Call for GUPPI Safe Harbor

by Daniel Powers | Jul 16, 2015 | DOJ Developments, FTC Developments, Mergers & Acquisitions

Four members of the Federal Trade Commission (FTC) issued a statement on July 13, 2015, disputing claims by a fellow commissioner that the 2010 Horizontal Merger Guidelines include a “safe harbor” that is available in unilateral effects merger investigations. Commissioner Joshua Wright’s comments about the potential safe harbor arose in the context of the Commission’s investigation into Dollar Tree’s proposed acquisition of Family Dollar Stores, Inc. The FTC has accepted a proposed settlement to resolve the alleged anticompetitive effects of that transaction.

The dispute involves a Gross Upward Pricing Pressure Index (GUPPI) analysis. The GUPPI analysis permits the federal antitrust enforcement agencies to assess whether a merger involving differentiated products is likely to result in unilateral anticompetitive effects. Such effects can arise where the merged entity can profit from diverted sales. The GUPPI measures the value of diverted sales that would be gained by the second firm measured in proportion to the revenues that would be lost by the first firm.

The 2010 Horizontal Merger Guidelines anticipate the use of such an analysis in certain cases. Indeed, according to the guidelines, “[i]f the value of diverted sales is proportionately small, significant unilateral price effects are unlikely.” Commissioner Joshua Wright pointed to this language, and statements by one of the principal drafters of the 2010 Guidelines, to argue that the Department of Justice had already publicly announced a safe harbor where the GUPPI is less than five percent. Commissioner Wright argued that there was a strong legal, economic and policy case in favor of such a safe harbor, and urged the FTC to “adopt a GUPPI-based safe harbor in unilateral effects investigations where the data are available.”

Wright’s fellow commissioners firmly disagreed that any safe harbor has previously been identified, or that such a safe harbor is appropriate. In their statement, Chairman Ramirez and Commissioners Brill, Ohlhausen and McSweeney explained that the GUPPI analysis serves “as a useful initial screen to flag those markets where the transaction might likely harm competition and those where it might pose little or no risk to competition.” They emphasized that the GUPPI analysis is “only a starting point” in a merger investigation. The commissioners further claimed that Commissioner Wright’s remarks ignored “the reality that merger analysis is inherently fact-specific” and that “[t]the manner in which GUPPI analysis is used will vary depending on the factual circumstances, the available data, and the other evidence gathered during an investigation.” The commissioners concluded that “accumulated experience and economic learning” do not provide an adequate basis for recognizing a GUPPI safe harbor. The Commission will continue to “use GUPPIs flexibly and as merely one tool of analysis in the Commission’s assessment of unilateral anticompetitive effects.”

ICN Adopts New Guidance Focusing on Investigative Process and International Cooperation in Mergers

by Louise Aberg | Jun 22, 2015 | Cartel Enforcement, Mergers & Acquisitions, Monopolization/Abuse of Dominance

From April 28 through May 1, the International Competition Network (ICN) held its 2015 annual conference. The ICN is a network that unites 132 competition watchdogs from 119 jurisdictions, including the Antitrust Division of the U.S. Department of Justice (DOJ), the Federal Trade Commission (FTC), the European Commission (EC) and the Japan Fair Trade Commission (JFTC). Its role is to act as a forum for the global antitrust community and to facilitate dialogue and build consensus on competition policy and practices. Members participate in working groups and produce recommendations once they have reached consensus. Each year, during the annual conference, recommendations are adopted by the members and become best practices or guidance tools that may be implemented by competition authorities across the world.

This year, the ICN adopted several recommended practices including, most notably, “ICN Guidance on Investigative Process” and an “ICN Practical Guide to International Enforcement Cooperation in Mergers.”

Guidance on Investigative Process

The “ICN Guidance on Investigative Process” is the result of discussions held within the Agency Effectiveness Working Group over several years as part of the ICN’s Investigative Process Project co-led by the FTC and the EC. This is the first time the ICN has addressed investigative processes used by competition agencies across all competition enforcement areas. The discussions focused on two prongs: (i) enforcement tools available to competition agencies to obtain relevant information in the course of their investigations, and (ii) the procedures they follow when conducting such investigations. The adopted work product contains a list of key principles and practices which the participants deemed important in order to guarantee an effective and fair investigative process:

Investigative tools. Competition authorities should be able to make use of investigative tools, such as requests for information, inspections and interviews. They should have the possibility to obtain information by compulsion if necessary. Such investigative tools should be used in accordance with a legal framework setting out clear criteria, and be subject to both internal checks and balances and external review.
Transparency concerning policies and standards. Competition authorities should lay out legal standards and agency policies in formal or informal documents, such as manuals, staff working papers, best practices or guidelines. There is one limit: transparency should not undermine the effectiveness of investigations.
Transparency during an investigation. Competition agencies should let parties know as soon as feasible that an investigation has been opened; the legal basis for the investigation; the competitive concerns and the applicable theories of harm; the progress and timing of the investigation; and, once formal allegations are made, the evidence relied upon. The level of transparency may be different depending on the type of investigation.
Engagement during an investigation. Competition agencies should provide parties with the possibility to defend themselves against the allegations raised. In doing so, parties should be able to submit factual, legal, and economic evidence in due course. Interested third parties should also be able to submit their views.
Confidentiality protection and legal privileges. Parties and third parties should be able to ask [...]

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ABA Antitrust Spring Meeting Highlight: “Antitrust & Health Care: Square Peg in a Round Hole?”

by Michelle Lowery | Apr 30, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

In this month’s American Bar Association (ABA) Section of Antitrust Law Spring Meeting, the program “Antitrust & Health Care: Square Peg in a Round Hole?” featured debate and discussion about antitrust law treatment of health care transactions and how that treatment might (or should) evolve (via regulation, legislation, or some combination of approaches), or conversely, whether the intersection of antitrust law and health care is more akin to a square peg meeting a round hole. Moderated by Jim Donahue (Office of the Pennsylvania Attorney General), the panel’s speakers included Robert Berenson, MD (The Urban Institute), Alexis Gilman (the Federal Trade Commission (FTC)), Melinda Hatton (American Hospital Association (AHA)) and Elinor Hoffmann (Office of the New York Attorney General (AG)).

Horizontal Mergers

The program first considered a hypothetical merger of specialty physician practices, where the acquiring practice has privileges at one of the market’s two hospitals and the merger would consolidate privileges at that hospital.

The FTC said it would likely look at the transaction on a specialty-by-specialty basis; the New York AG agreed, but thought it was worth considering: is multi-specialty a market itself? She referenced ProMedica’s cluster markets as a possible route for analyzing the transaction (e.g., a parent might take two children to a multi-specialty practice at the same time, one to see a pediatrician and the other to see a dermatologist).

The American Hospital Association (AHA) thought that with the Affordable Care Act’s (ACA’s) incentive to keep the population out of the hospital, hospitals are repurposing services toward population health goals, and referenced remote medicine and affiliations.

Remedies

The FTC stated that it continued to prefer structural remedies in the form of injunctions or divestitures for health care transactions, pointing to its rejection of Phoebe Putney’s proposed conduct remedy. The New York AG agreed that while structural remedies are typically best, the states (particularly Pennsylvania and New York) tend to be more willing to consider conduct remedies, often with the goal of marrying regulation with achievement (efficiencies).

Dr. Berenson posited that physician group acquisitions are the wave of the future, because the current regulatory environment makes solo practice difficult. So, he said, where physicians or specialties must be divested, those doctors are now likely to seek hospital employment.

From the hospital perspective, the AHA noted that health care transactions are a peculiar breed— health care cannot be divorced from regulation, acquisition costs are usually very high, and hospitals must pay fair market value under Stark and Anti-Kickback laws—and commented that the peculiarities of such transactions are not always adequately taken into consideration in merger challenges.

Vertical Mergers; Narrow vs. Broad Networks

The panel next considered a hypothetical merger where a health plan with 60 percent market share in a mid-size city purchases one of the two hospitals and changes its network from broad to narrow.

The FTC noted that although they have not challenged this sort of vertical health care transaction, it would do so under the right circumstances (e.g., if the hospital had no excess capacity, [...]

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FTC Clarifies “Failing Firm” Defense

by McDermott Will & Emery | Apr 2, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

Earlier this week, the Federal Trade Commission (FTC) published an article that offers guidance on the “failing firm” or “flailing firm” defense often invoked in the hospital merger context. The article, written by Debbie Feinstein and Alexis Gilman of the Bureau of Competition, clarifies the circumstances under which this defense is and is not available.

At the outset, Feinstein and Gilman point out the basic requirements for establishing a failing firm defense, as set forth in § 11 of the Horizontal Merger guidelines:

the company is unable to meet its obligations as they come due;
the firm would not be able to reorganize successfully in bankruptcy; and
it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its assets in the relevant market and pose a less severe danger to competition than does the proposed merger.

The article goes on to emphasize an additional nuance required for the defense—that the acquiring company is the only available purchaser. This goes hand-in-hand with requirement three listed above. As an example, the authors describe a recent FTC investigation that involved “a hospital that was clearly failing.” The hospital’s bankrupt status did not calm the FTC’s concerns about the transaction, because the FTC learned that there was an interested alternate purchaser who did not pose the same competitive risks as the chosen acquirer.

Even if the acquisition price of a “failing” or “flailing” firm is below the Hart-Scott-Rodino reporting threshold, potential acquirers should assess the antitrust risk associated with the transaction and be sure to factor any costs associated with that risk into the sticker price. The failing or flailing firm should be prepared to demonstrate the efforts it made to find an acquirer. Non-reportable transactions are within the FTC’s reach and are often on the agency’s radar, particularly in the health care context.

The full text of the article is available here.

FTC Consent Agreement with Par Petroleum Demonstrates Increased Agency Focus on Competitive Effects

by Emily Townsend | Mar 29, 2015 | FTC Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

On March 18, 2015, the Federal Trade Commission (FTC) ordered Par Petroleum Corporation to terminate its storage and throughput rights at a key gasoline terminal in Hawaii. This action will settle FTC charges seeking to prevent Par’s acquisition of Koko’oha Investments, Inc. Notably, the market structure created as a result of this remedy mirrors a market structure that was deemed anticompetitive in a 2005 FTC action. The two differing approaches to the same market highlight a key trend in the FTC’s merger enforcement: the focus on competitive effects of a transaction, as opposed to the resulting market structure.

The Market for Hawaii-Grade Gasoline Blendstock

The allegedly anticompetitive transaction affects the market for Hawaii-grade gasoline blendstock. Gasoline blendstock is produced by refining crude oil and is later combined with ethanol to make finished gasoline. The finished gasoline is sold to Hawaiian consumers.

Prior to the transaction, there were four competitors in the market for Hawaii-grade gasoline blendstock. Par and another oil company competed by operating refineries and producing the blendstock on the Hawaiian Islands. The other two competitors, Mid Pac Petroleum, LLC, and Aloha Petroleum, Ltd., competed by sharing access to the only commercial gasoline terminal on the Islands not owned by a refinery and capable of receiving full waterborne shipments of gasoline blendstock. This terminal, the Barbers Point Terminal, was owned by Aloha, but Mid Pac shared access through a long-term storage and throughput agreement.

The two oil refiners produced more gasoline than was consumed in Hawaii. As a result, importing gasoline blendstock was unnecessary. However, Mid Pac and Aloha were able to constrain the price of gasoline blendstock purchased from the Hawaiian refiners by maintaining their ability to import gasoline blendstock through the Barbers Point Terminal.

The Proposed Transaction and the FTC Challenge

On June 2, 2014, Par agreed to acquire Koko’oha for $107 million. As part of this transaction, Par would acquire Koko’oha’s 100 percent membership interest in Mid Pac and, therefore, Mid Pac’s rights to access the Barbers Point Terminal. The FTC filed a complaint alleging this transaction was likely to substantially lessen competition in the bulk supply of Hawaii-grade gasoline blendstock.

The basis of the FTC’s action was that “[t]he Acquisition would weaken the threat of imports as a constraint on local refiners’ [gasoline blendstock] prices.” By acquiring Mid Pac’s throughput and storage rights at Barbers Point Terminal, Par would have an incentive to use those rights strategically to weaken Aloha’s ability to constrain the price of gasoline blendstock. The specific competitive concern the FTC cited was that Par would store substantial amounts of gasoline in the Barbers Point Terminal for extended periods of time. By doing so, Par would tie up the capacity at the terminal and thereby reduce the size of import shipment that Aloha could receive at the terminal. “This would force Aloha to spread substantial fixed freight costs over a smaller number of barrels of gasoline, which would significantly increase its cost-per-barrel of importing.”

On March 18, 2015, the FTC and Par [...]

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FTC Rule Change Simplifies Process Following a Denial of a Preliminary Injunction Motion

by Lisa A. Peterson | Mar 18, 2015 | FTC Developments, Mergers & Acquisitions

On March 14, 2015, the Federal Trade Commission (FTC) announced procedural revisions governing the FTC process when it loses an injunction bid in federal court, to block the consummation of a merger pending its in-house administrative proceedings on the legality of the merger.

When the FTC seeks to challenge a merger, the FTC generally seeks an injunction in court to prevent consummation of the merger pending the outcome of an internal administrative proceeding. If the injunction is implemented, it prevents the parties from integrating the assets and preserves the FTC’s ability to effectively and efficiently fix the merger should it be warranted at the conclusion of the administrative proceeding.

Under the new rules, when the FTC loses its request for an injunction, the pending in-house administrative proceeding will be automatically withdrawn or stayed at the request of the merging parties unless the FTC determines that continuing the litigation would serve the public interest. The intention of the new procedure it to make clear that the FTC will not automatically continue its internal administrative hearing to block a merger if it fails to win an injunction in federal court.

When deciding whether to continue its administrative proceedings, the FTC will still evaluate a proposed transaction under the same factors it used before the rule change. The five factors the FTC uses to determine whether it is in the public interest to pursue administrative proceedings are: (1) a federal court’s factual findings and legal conclusions; (2) any new evidence developed during the preliminary injunction proceeding; (3) whether administrative proceedings will resolve important issues of fact, law or merger policy raised by the transaction; (4) an overall evaluation of the costs and benefits; and (5) any other matter that influences whether it would be in the public interest to continue with the merger challenge.

The FTC’s procedural revision will go into force shortly. It will, therefore, be in effect before the outcome of its preliminary injunction hearing seeking to block the merger between Sysco Corp. and US Foods Inc. pending an internal administrative proceeding. The preliminary injunction hearing is set in May 2015 before Judge Amit Mehta in the United States District Court for the District of Columbia, and the in-house administrative proceeding is set for July. If the FTC loses the preliminary injunction hearing in federal court, the new procedure will be exercised for the first time.

Italian Merger Control Thresholds – New Revisions

by Martino Sforza | Mar 16, 2015 | Italian Developments, Mergers & Acquisitions

The Italian Competition Authority has updated its merger control turnover thresholds. Effective today, 16 March 2015, 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 EUR 492 million (revised under the terms of the same Section 16(1)); AND
Aggregate turnover in Italy of the target company is above EUR 49 million (as revised)

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

FTC and DOJ Host Workshop Examining Health Care Competition

by McDermott Will & Emery, Ashley Fischer, Lisa A. Peterson, Stephen Wu and McDermott Will & Emery | Mar 4, 2015 | DOJ Developments, FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) held a public workshop on February 24–25, 2015, to examine recent trends and developments in health care provider organization and payment models, and their potential effects on competition in the provision of health care services. A main message from FTC and DOJ leadership at the workshop is that the agencies evaluate new provider and payment models for their adherence to competition principles, effect on cost of care, access and quality, and avoidance of market power.

Read the full article.

FTC Merger Review Likely to Incorporate Analysis of Privacy Issues

by Emily Townsend | Mar 3, 2015 | Consumer Protection/Privacy, FTC Developments, Mergers & Acquisitions

The Federal Trade Commission (FTC or the Commission), along with the U.S. Department of Justice, can challenge mergers it believes will result in a substantial lessening of competition – for example through higher prices, lower quality or reduced rates of innovation. Although the analysis of whether a transaction may be anticompetitive typically focuses on price, privacy is increasingly regarded as a kind of non-price competition, like quality or innovation. During a recent symposium on the parameters and enforcement reach of Section 5 of the FTC Act, Deborah Feinstein, the director of the FTC’s Bureau of Competition, noted that privacy concerns are becoming more important in the agency’s merger reviews. Specifically she stated, “Privacy could be a form of non-price competition important to customers that could be actionable if two kinds of companies competed on privacy commitments on technologies they came up with.”

At this same symposium, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, remarked on the agency’s increasing expectations that companies protect the consumer data they collect and be more transparent about what they collect, how they store and protect it, and about third parties with whom they share the data.

The FTC’s Bureaus of Competition and Consumer Protection fulfill the agency’s dual mission to promote competition and protect consumers, in part, through the enforcement of Section 5 of the FTC Act. With two areas of expertise and a supporting Bureau of Economics under one roof, the Commission is uniquely positioned to analyze whether a potential merger may substantially lessen privacy-related competition.

The concept that privacy is a form of non-price competition is not new to the FTC. In its 2007 statement upon closing its investigation into the merger of Google, Inc. and DoubleClick Inc., the Commission recognized that mergers can “adversely affect non-price attributes of competition, such as consumer privacy.” Commissioner Pamela Jones Harbour’s dissent in the Google/DoubleClick matter outlined a number of forward-looking competition and privacy-related considerations for analyzing mergers of data-rich companies. The FTC ultimately concluded that the evidence in that case “did not support the theories of potential competitive harm” and thus declined to challenge the deal. The matter laid the groundwork, however, for the agency’s future consideration of these issues.

While the FTC has yet to challenge a transaction on the basis that privacy competition would be substantially lessened, parties can expect staff from both the Bureau of Competition and the Bureau of Consumer Protection to be working closely together to analyze a proposed transaction’s impact on privacy. The FTC’s review of mergers between entities with large databases of consumer information may focus on: (1) whether the transaction will result in decreased privacy protections,i.e., lower quality of privacy; and (2) whether the combined parties achieve market power as a result of combining their consumer data.

This concept is not unique to the United States. The European Commission’s 2008 decision inTomTom/Tele Atlas examined whether there would be a decrease in privacy-based competition [...]

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