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ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
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A Global Resource for Compliance Officers & Legal Advisors
Mergers & Acquisitions
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FTC Clarifies “Failing Firm” Defense

by | Apr 2, 2015 | , ,

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:

  1. the company is unable to meet its obligations as they come due;
  2. the firm would not be able to reorganize successfully in bankruptcy; and
  3. 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.



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

by | Mar 29, 2015 | , ,

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 | Mar 18, 2015 | ,

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.



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Italian Merger Control Thresholds – New Revisions

by | Mar 16, 2015 | ,

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.



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FTC and DOJ Host Workshop Examining Health Care Competition

by , , , and | Mar 4, 2015 | , , ,

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.



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FTC Merger Review Likely to Incorporate Analysis of Privacy Issues

by | Mar 3, 2015 | , ,

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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Top Antitrust Watchdog to Merging Firms: DOJ Not Interested in Remedies that Require Ongoing Regulatory Oversight

by | Feb 19, 2015 | ,

Head U.S. Department of Justice (DOJ) antitrust enforcer, Bill Baer, believes the Federal Trade Commission and DOJ are law enforcement agencies, not regulators.  In his recent speech at the Global Competition Review Fourth Annual Antitrust Leaders Forum, Baer stressed that antitrust regulation “is not what we do.  And it is not how we ought to think about what we do.”  He added that the antitrust agencies “do not aspire to be regulators or to pick winners and losers.  Instead antitrust enforcement, done right, focuses on removing impediments to competitive markets and protecting market structures that facilitate competition.”  Baer’s enforcement-minded approach likely explains one reason why the federal antitrust agencies do not typically accept conduct remedies to resolve antitrust concerns.  Conduct remedies require an entity to take, or refrain from, certain business conduct (e.g., price maintenance commitments).  The federal antitrust agencies disfavor conduct remedies in part because they often require significant monitoring (i.e., regulation) to fully protect competition.  As enforcers, Baer believes the agencies should use the antitrust laws to preserve competition with little regulatory involvement.  He noted in his recent speech that effective antitrust remedies “minimize the need for ongoing regulatory involvement in decisions better left to the market.”

As litigation expenses continue to rise, it is often prudent for parties under antitrust investigation to resolve the antitrust agencies’ concerns through a consent agreement.  The nature of the parties’ proposed remedy is highly important.  With federal antitrust agencies unlikely to accept conduct remedies to resolve antitrust concerns, parties must be ready to present structural remedies—i.e., asset divestitures to ready, willing and able buyers—that fully preserve competition.  The antitrust agencies will carefully scrutinize any proposed remedy.  If the reviewing agency believes the remedy falls short of fully preserving competition, then it likely will be rejected.  Indeed, Baer messaged in his speech that “[s]ound antitrust enforcement requires careful attention to remedies.”  He praised DOJ’s recent efforts to reject inadequate remedy proposals in favor of pursuing law enforcement actions to obtain the relief DOJ deemed necessary to preserve competition.  In short, parties must be ready to fully address the antitrust agencies concerns or do battle in court.



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Out-of-Market Divestiture Required to Resolve Competitive Concerns

by | Feb 9, 2015 | , ,

On January 30, 2015, the Federal Trade Commission (FTC) announced a settlement of its investigation into Sun Pharmaceutical Industries Ltd.’s (Sun) acquisition of Ranbaxy Laboratories Ltd. (Ranbaxy) from Daiichi Sankyo Co., Ltd.  Sun and Ranbaxy are both multinational pharmaceutical companies that produce a range of generic and branded drugs.

In its complaint, the FTC alleges the relevant product market to be “the development, license, manufacture, marketing, distribution, and sale of generic minocycline hydrochloride 50 mg, 75 mg, and 100 mg tablets (‘minocycline tablets’).”  Ranbaxy is currently one of only three U.S. suppliers of the relevant doses of minocycline tablets, with Sun being one of a limited number of firms likely to enter the alleged market in the near future.  The complaint further alleges that the acquisition would eliminate a potential future competitor and therefore tend to substantially lessen competition by foregoing or delaying Sun’s entry into the relevant market and increase the likelihood that the combined entity would reduce price competition.

To resolve the competitive concern, the FTC is requiring divestiture not only of the minocycline tablets but also a product outside of the alleged relevant market—minocycline capsules.  In its aid to public comment, the FTC states that this out-of-market divestiture is necessary to ensure that the divestiture buyer “achieves regulatory approval to qualify a new [active pharmaceutical ingredient] supplier for its minocycline tablets as quickly as Ranbaxy would have.”

Once the FTC or U.S. Department of Justice  determines that a competitive problem exists, the agency will seek potential remedies, including divestiture.   A cornerstone principle the agencies apply in evaluating a proposed remedy is that the remedy must restore competition to the level that would have existed had the underlying merger or acquisition not proceeded.   This case illustrates an application of that principle, where the FTC required the divestiture of the out-of-market assets because, in its view, if those assets were not included the remedy would have left the relevant product market less competitive than it would have been if Sun and Ranbaxy remained independent competitors.

Although not a common outcome, firms considering a transaction involving products subject to regulatory approval should take note of the potential for out-of-market divestitures when assessing a potential deal.

The FTC’s complaint and related documents can be found here.



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Notification Threshold Under the Hart-Scott-Rodino Act Increased to $76.3 Million

by and | Jan 21, 2015 |

The U.S. Federal Trade Commission (FTC) recently announced increased thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) and 2015 thresholds for determining whether parties trigger the prohibition against interlocking directors under Section 8 of the Clayton Act.

Notification Threshold Adjustments

Pursuant to the amendments passed by the U.S. Congress in 2000, the FTC published revised thresholds for HSR pre-merger notifications in the Federal Register on January 21, 2015.  These increased thresholds will become effective on February 20, 2015.  These new thresholds apply to any transaction completed and any HSR pre-merger notifications filed on or after February 20, 2015.

As required, the FTC adjusted the notification thresholds based on the change in the gross national product (GNP) for the fiscal year ending September 30, 2014.  Most notably, the base filing threshold of $50 million, which frequently determines whether a transaction requires filing of an HSR notification, will increase from $75.9 million to $76.3 million.  The changes also will affect other dollar-amount thresholds:

  • The alternative statutory size-of-transaction test, which captures all transactions valued above $200 million regardless of the “size-of-persons,” will be adjusted to $305.1 million.
  • The statutory size-of-person thresholds (applicable to transactions valued at more than $76.3 million, but less than $305.1 million) will increase slightly from $15.2 million to $15.3 million and from $151.7 million to $152.5 million.

The adjustments will affect parties contemplating HSR notifications in various ways.  Parties may be relieved from the obligation to file a notification for transactions closed on or after February 20, 2015, that result in holdings below the adjusted base threshold.  For example, a transaction resulting in the acquiring person holding voting securities, a controlling interest in a non-corporate entity, or assets valued at less than $76.3 million would not be reportable on or after the effective date.  The adjustments will also affect various exemptions under the HSR rules.  For example, acquisitions by U.S. persons of foreign assets and voting securities of foreign issuers will now be exempt unless they generated U.S. sales in excess of $76.3 million or, in the case of foreign voting securities, the issuer has assets in the United States valued in excess of $76.3 million.

Parties may also realize a benefit of lower notification filing fees for transactions that just cross current thresholds.  Under the rules, the acquiring person must pay a filing fee, although the parties may allocate that fee amongst themselves.  Filing fees for HSR-reportable transactions will remain unchanged; however, the applicable filing fee tiers will shift upward as a result of the GNP-indexing adjustments:

  • Transactions valued at or in excess of $76.3 million, but less than $152.5 million, require a $45,000 filing fee.
  • Transactions valued at or in excess of $152.5 million, but less than $762.7 million, require a $125,000 filing fee.
  • Transactions valued at or above $762.7 million require a $280,000 filing fee.

Interlocking Directorate Thresholds Adjustment

On January 21, 2015, the FTC also published revised thresholds for interlocking directorates that are effective immediately.  The FTC revises these [...]

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