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Mergers & Acquisitions
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Application of the ‘Priority Principle’

by | Jun 14, 2012 | ,

by Lionel Lesur

The EU Commission was notified of the Seagate/Samsung transaction and the Western Digital/Hitachi transactions – both mergers involving hard drive disk businesses – within days of each other. In its decision on the Seagate/Samsung transaction (published on May 10, 2012), the EU Commission explains its different treatment of the two mergers. 

The EU Commission explains that the ‘priority principle’ requires them to review a deal’s impact on competition according to the date the deal was notified. Therefore, because Seagate/Samsung was notified first, the EU Commission examined the deal based upon the competitive conditions existing at the time of notification and without considering the potential impact of a second deal which was notified only one day later.

Reminder of the facts

Seagate Technology had prenotification contacts with the Commission March 14, 2011 and publicly announced and notified its acquisition of Samsung’s hard disk drive business on April 19, 2011. After a Phase II investigation, the EU Commission unconditionally cleared the transaction on October 19, 2011, concluding that it would not significantly impede effective competition in the hard disk drive market because four competitors would remain.

Western Digital proposed to acquire Hitachi’s hard drive business and notified this transaction on April 20, 2011, after Seagate/Samung. Western Digital and Hitachi publicly announced the deal on March 7, 2011 and had prenotification contacts with the Commission on March 10, 2011 – both dates earlier than the same events for Seagate and Samsung. The Western Digital/Hitachi transaction was also cleared by the EU Commission after a Phase II investigation on November 23,  2011, but was subject to several significant remedies (and application of the ”up-front buyer" system) unlike Seagate/Samsung because the EU Commission carried out its competitive analysis on the basis that only three hard disk drive competitors would remain.

Explanation of the ‘priority principle’ applied by the EU Commission

In its decision concerning the Seagate/Samsung transaction, the EU Commission recognizes having assessed the transaction according to a “priority principle” ("first come, first served" approach), based on the date of notification. The EU Commission defended the application of this “priority principle” and noted that it had already been applied in several previous cases (most recently in TomTom/Tele Atlas, Commission Decision of May 14, 2008) but the EU Commission had not expressly explained its approach as they have in the present case.

According to the EU Commission, the relevant framework to evaluate the effects of a transaction is the competitive conditions existing at the time of notification ("It is neither necessary nor appropriate to take into account future changes to the market conditions resulting from subsequently notified transactions that require approval from the Commission."). The EU Commission states that the date of notification is a clear and objective criterion for applying the priority principle. It "takes the view that the priority principle, based on the date of notification, is the only one that ensures sufficient legal certainty, transparency and objectivity and respect the other provisions and aims of the Merger Regulation."

The [...]

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PA Hospital Merger May Proceed With Restrictions on Rate Negotiations and Other Conduct in Settlement with AG

by | Jun 8, 2012 | ,

by Jeff Brennan

On June 7, 2012, Pennsylvania, through its Attorney General (AG), filed an antitrust complaint and consent order in U.S. District Court (M.D. Pa.), settling charges that Geisinger Health System’s acquisition of Bloomsburg Hospital violated section 7 of the Clayton Act and the state common law prohibition on suppression of competition.  The core allegation is that the merging of Geisinger and Bloomsburg — two of three principal rival hospitals in the Columbia County area and employers of physicians — would lead to higher prices for (i) primary and secondary inpatient acute care services and (ii) primary and non-tertiary specialist physician services.  Notably, the AG did not seek to enjoin the deal but elected to accept a multi-faceted "conduct" remedy.  

Probably the most significant of the many conduct restrictions is the enablement of health plans to trigger (with AG involvement) independent third party review of Geisinger’s price proposals.  Geisinger’s prices must be based on Bloomsburg Hospital costs, not System costs, to obtain "a reasonable profit margin for similarly sized and well run community hospitals."  In other words, Geisinger may not readily apply System prices to Bloomsburg.  The settlement also prohibits Geisinger from requiring payors to contract with the whole System in order to contract with Bloomsburg, and from requiring a payor to exclude a competitor hospital from the network in order to obtain a contract with Geisinger.   A few observations:

  1. PA implied that it accepted a conduct remedy over an injunction in light of Bloomsburg’s dire financial condition.  Bloomsburg said that by October 2012 it would have insufficient cash to meet its obligations and could not continue operations.  The AG said it consented to the order "[g]iven the Acquired Parties’ financial condition and the potential for the loss of 900 jobs."
  2. The Federal Trade Commission (FTC) was not a party to this action, for reasons we do not know.  The FTC has traditionally been unwilling to accept conduct restrictions in lieu of divestitures to resolve concerns that a prospective hospital merger is anticompetitive.  An exception was in the unusual case of a merger that had been consummated for seven years prior to the FTC’s finding of antitrust liability, at which point the FTC concluded that divestiture would do more harm than good and instead required separate contracting between the merged hospitals.  (This was 2007’s decision in Evanston Northwestern/Highland Park.)
  3. The Geisinger case is one of "good news/bad news" for hospitals.  The good news is that, at least at the state level, it shows a potential path forward for deals that raise antitrust concerns.  The bad news is that consummation came with the cost of an extensive set of restrictions on contracting and other activities that require rigorous monitoring for compliance.  Especially for hospitals facing difficult financial challenges, moreover, there is — again, from the limited perspective of state enforcement — the good news that alliances with a large and financially sound competitor may be obtainable, but also the bad news that the rival’s more favorable rate structure [...]

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Liberalizations Decree: Main Relevant Changes and Powers of the Italian Competition Authority

by | May 23, 2012 | ,

by Veronica Pinotti and Martino Sforza. 

The main developments in antitrust are:

1. Merger Control (Art. 5-bis)

From January 1, 2013:

  • The Italian merger control thresholds will be cumulative and no longer alternative (i.e. the combined turnover in Italy of all undertakings concerned exceeds € 468 million AND the Italian turnover of the target exceeds € 47 million);
  • The current mandatory merger control filing fee (i.e. 1.2 percent of the value of the transaction in a range of € 3,000 and € 60,000) will be replaced by a mandatory fee of 0.08 per thousand of the turnover applicable (regardless of a transaction being filed) to all companies having a turnover exceeding € 50 million (such contribution shall be paid by October 30, 2012 for the first year, and July 31, 2013 for the following years).

2. New Bodies

  • Business Courts (Art. 2) – by September 24, 2012, the IP specialized sections of Italy’s Tribunals and Appeal Courts (renamed “business specialized sections”) will have jurisdiction also over all claims for damages caused by national and EU antitrust infringements, as well as corporate and public procurement matters involving limited companies.
  • Transport Authority (Art. 36) – it will be created within May 31, 2012 and will have supervising powers on the transport sector and the access to relevant infrastructures (it will be fully operative following the adoption of its implementing decrees).

3. Main New Powers of the Authority

  • Unfair clauses (Art. 5) – since March 24, 2012, the Authority is responsible to ensure protection against unfair contractual clauses in business to consumer agreements and it may impose fines up to € 50,000.
  • Unfair commercial practices (Art. 7) – since March 24, 2012, extension of the Authority’s powers in the enforcement of the unfair commercial practices rules to protect, not only consumers, but also small enterprises (with less than 10 employees and a turnover of less than € 2 million).
  • Food sector (Art. 62) – from October 25, 2012, the Authority will have the power to supervise and may apply fines up to € 500,000, in case of breach of the new rules concerning agreements in the food sector (i.e. written form and other specific requirements; obligation to pay within 30 days for perishable goods and within 60 days for all other goods).
  • Public Utilities (Art. 25) – since March 24, 2012, the Authority shall now be consulted in various fields, including the public utilities local award procedures (where the population is above 10,000 inhabitants).

4. Banks and Insurance

  • Banks (Art. 28) – from July 1,2012, banks shall propose to their customers the offers of at least two different insurance groups, if they require a life insurance as a condition to issue a mortgage.
  • Insurance (Art. 34) – no later than July 24, 2012, car insurance intermediaries will be required to inform their customers about the contractual conditions proposed by at least three different insurance groups.

5. Class Action (Art. 6)

Amendments to the current rules (entered [...]

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China Law Alert: Focus on Competition – March 2012

by | Mar 26, 2012 | , ,

by Henry L.T. Chen, Frank Schoneveld, Alex An, Brian Fu and Angel Wang

McDermott Will & Emery has released the latest China Law Alert: Focus on Competition, which provides insight on current issues surrounding cross-border antitrust and transactional issues. 

China’s New Merger Control Regime Makes Major Progress in Its First Three Years

It is now just more than three years since China’s Anti-Monopoly Law (AML) was introduced. Compared with the well-established practices of US antitrust and EU competition authorities, AML enforcement is still in its infancy. However, China’s AML regulators, especially the authority in charge of merger control, the Ministry of Commerce (MOFCOM), has moved quickly to make its mark on international business. Now, most large, cross-border mergers, acquisitions and joint ventures must also successfully pass the rigors of review by MOFCOM as well as the European Commission and the US Department of Justice (DOJ) and/or Federal Trade Commission (FTC).  Read the full article here.

NDRC and SAIC’s Actions in 2011 and Prospects in 2012

China’s National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC) are the two authorities in charge of investigation and supervision of “monopoly” agreements and abuses of dominant market position. NDRC focuses on price-related cases while SAIC takes care of non-price related violations of the law. Compared to MOFCOM, which is responsible for merger control, NDRC and SAIC have been relatively quite since China’s AML came into force on 1 August 2008.  Read the full article here.

Civil Litigation under China’s Anti-Monopoly Law

Since the introduction of the China AML in August 2008, Chinese courts have experimented with various methods of civil dispute adjudication based on breach of the AML. In general, China’s courts have very limited judicial experience with such cases. A number of civil cases have been brought before the courts, but very few, if any, have resulted in a successful judgment for breach of the AML.  Read the full article here.

Might the Ministry of Industry and Information Technology (MIIT) Become A New Enforcement Authority for China’s Competition Laws?

In addition to MOFCOM, SAIC and NDRC, the three major enforcement authorities for the anti-unfair competition and anti-monopoly laws, it seems the MIIT might also become a regulator of competition in the telecommunications sector. In addition to a Draft Regulation on Internet Information Services, published for consultation in January 2012, MIIT released an “Opinion on Regulating the Business Activities of Basic Telecommunications Carriers on Campuses” (the Opinion) on 30 June 2011.  Read the full article here.



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Acting Assistant Attorney General Sees Increasing Barriers to Entry in Health Insurance

by | Mar 26, 2012 | , ,

by Hillary Webber

Last week, Sharis Pozen, Acting Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, spoke at the World Annual Leadership Summit on Mergers and Acquisitions in Health Care, where she affirmed that protection of competition in the health care industry is a top priority of the Division.  Pozen highlighted the Division’s recent enforcement activities in insurance and provider markets, including challenges to insurance company mergers and contracting practices used by dominant insurers or providers such as Most Favored Nation (MFN) provisions and exclusivity agreements. 

Of note, Pozen remarked that the Division undertook a comprehensive evaluation of health insurance markets, the results of which have caused the Division to regard with increasing skepticism the ability of new entry to constrain a merged health insurance firm.  Pozen explained that new entrants face obstacles because they need provider discounts to attract enrollees but have difficulty obtaining them without a large number of enrollees.  Pozen stated that the Division will focus more attention on entry analysis to protect markets from harmful consolidation, especially markets dominated by one or two plans.  Regarding provider markets, Pozen described the Division as "on the lookout for agreements or arrangements purported to improve quality but where the real goal is simply to raise prices."  This is especially relevant given the Affordable Care Act’s encouragement of provider collaboration in the form of Accountable Care Organizations (ACOs).

Pozen’s remarks are available at: https://www.justice.gov/atr/public/speeches/281236.pdf.

Pozen’s comments highlight the need for health care companies considering collaborative arrangements with competitors or contracting arrangements such as MFNs or exclusivity agreements to consult counsel and articulate a clear pro-competitive basis for such conduct. 



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China Conditionally Clears Western Digital’s Acquisition of Hitachi’s Hard Disk Drive Business

by | Mar 15, 2012 | , ,

by Henry L.T. Chen, Frank Schoneveld and James Jiang

Recently China’s Ministry of Commerce (MOFCOM) approved Western Digital’s proposed acquisition of Hitachi’s hard disk drive business on a conditional basis.  Containing the most comprehensive clearance conditions ever imposed by MOFCOM, this decision mirrors previous guidance issued by the European Commission and illustrates that at least two authorities in two of the world’s major economies are working toward imposing similar clearance conditions in their respective jurisdictions.

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FERC Reaffirms Merger Policy; Does Not Adopt DOJ/FTC 2010 Horizontal Merger Guidelines

by | Feb 27, 2012 | , , ,

by Jon Dubrow and Cerissa Cafasso

Public utilities could face different levels of scrutiny in merger reviews before the U.S. Federal Energy Regulatory Commission, and the Department of Justice and the Federal Trade Commission (the Antitrust Agencies).

To view the full article, please click here. 



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China’s MOFCOM to Review Merger in Gas Market

by | Feb 23, 2012 | ,

by Henry L.T. Chen, Frank Schoneveld and Alex An

Recently, ENN Energy Holdings Limited and China Petroleum & Chemical Corporation jointly announced the acquisition of all outstanding shares in China Gas Holdings Limited.  This acquisition triggers a requirement to notify and obtain clearance from China’s Ministry of Commerce (MOFCOM).  Therefore, MOFCOM’s approval will be one of the preconditions for ENN Energy and Sinopec to close the transaction.

To read the full article, please click here. 



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Notification Threshold Under the Hart-Scott-Rodino Act Increased to $68.2 million

by | Jan 27, 2012 |

by Jon B. Dubrow, Joseph F. Winterscheid and Carla A. R. Hine

The U.S. Federal Trade Commission (FTC) recently announced revised thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) and 2012 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 27, 2012.  These revised thresholds will become effective on February 27, 2012.  Any transaction completed and any HSR pre-merger notifications filed on or after February 27, 2012, must comply with these new thresholds.

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, 2011.   Most notably, the base filing threshold of $50 million, which frequently determines whether a transaction requires filing of an HSR notification, will increase from $66.0 million to $68.2 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 $272.8 million.
  • The statutory size-of-person thresholds (applicable to transactions valued at less than $272.8 million, but more than $68.2 million) will increase from $13.2 million to $13.6 million and from $126.9 million to $131.9 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 27, 2012, that result in holdings below the adjusted base threshold.  For example, a transaction resulting in the acquiring person holding voting securities or assets valued at less than $68.2 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 of foreign assets and voting securities of foreign issuers will now be exempt unless they generated U.S. sales in excess of $68.2 million or, in the case of foreign voting securities, the issuer has assets in the United States valued in excess of $68.2 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 for now (although the FTC is pursuing filing fee increases).  However, the applicable filing fee tiers will shift upward as a result of the GNP-indexing adjustments:

  • Transactions valued at or in excess of $68.2 million, but less than $136.4 million require a $45,000 filing fee.
  • Transactions valued at or in excess of $136.4 million, but less than $682.1 million require a $125,000 filing fee.
  • Transactions valued at or above $682.1 million require a $280,000 filing fee.

Interlocking Directorate Thresholds Adjustment

On January 27, 2012, the FTC published [...]

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