In a prior note we provided guidance on COVID-19’s Impact on HSR Filing Timelines. The Agencies had indicated that early termination would not be granted while FTC operated on a temporary e-filing system.
Today, the Agencies have updated that guidance and as of March 30 will again grant early termination when both the FTC and DOJ have determined that no enforcement action will be taken during the initial waiting period. The granting of early termination for the initial HSR waiting period is not a right and is granted only at the Agencies’ discretion. The new guidance from the Premerger Notification Office states that early termination will be provided on a more limited basis and later in the process than historically provided.
In the midst of the ongoing global effort to mitigate the effects of COVID-19, the Directorate-General for Competition (DG Competition) of the European Commission (EC) and the EU courts are taking measures to prevent the spread of the virus among individuals whilst at the same time seeking to ensure that the EU economy remains as stable as possible. The situation remains highly fluid for the foreseeable future. Companies are therefore urged to stay abreast of the continually changing measures being taken.
WHAT HAPPENED
EC Staff working on “non-essential” projects are working remotely from home. However, officials who hold “critical” functions, such as the Commissioner, the Director-General and Heads of Unit, will generally be present at DG Competition, although working on a shift basis. In-person meetings will be replaced by video conferences going forward. DG Competition staff who are dealing with the provision of State aid exemptions during the crisis are being considered “critical”.
With COVID-19-related closures rolling in daily, you may have questions about the operating status of the federal government’s antitrust enforcement agencies. Currently, the HSR review process does not seem to be significantly impacted, although the agencies will not grant a request for early termination during this period (as noted in our recent update, the FTC will again process early termination requests as of March 30, though on a more limited basis and later in the process than historically provided). Unlike the government shutdowns in 2013 and 2018, all FTC and DOJ staff are working full time. In addition, the agencies have implemented a mandatory e-filing system for all HSRs.
Given that the agencies will continue to work full-time and that an e-filing system is in place, we think it is unlikely that there will be significant impact on timing for the vast majority of transactions, particularly where there is no competitive overlap between the transacting companies.
Last month, the Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) released updated Vertical Merger Guidelines in draft form. These guidelines provide a useful resource for aerospace and defense contractors involved in M&A transactions. Vertical competition issues frequently arise in this industry given the nature of the supply base and contracting and supply relationships between companies operating at different levels of the supply chain.
This is the first time the antitrust agencies have released updated guidelines for analyzing vertical mergers since 1984. Although the agencies have updated the Horizontal Merger Guidelines several times since then (most recently in 2010), they have not provided similar updated guidance to businesses regarding vertical merger enforcement until now. The new guidelines summarize the practices, standards, and theories the agencies have used in evaluating vertical mergers for a number of years. Although the guidelines do not signal any shifts in current agency practice, they do provide the business community greater transparency about how the agencies analyze vertical mergers. This is helpful for the aerospace and defense industry, which is particularly susceptible to vertical competition issues given the heavy reliance on contracting out important elements at different levels of the supply chain.
Antitrust regulators in the United States and Europe were very active in the final quarter of 2019. The FTC and DOJ continue to investigate and challenge M&A transactions in a variety of industries. Events of this quarter highlight the importance of states in merger enforcement. As well, recent FTC activity highlights the regulators’ focus on preventing monopolists from buying nascent competitors.
In Europe, the UK CMA continues to expand its role as a key jurisdiction in the merger clearance process, which will only accelerate with Brexit. The EC agreed to clear, subject to conditions, acquisitions in the aluminum production and battery industries as well as in the wholesale supply and retail distribution of TV channels after conducting Phase II reviews. Moreover, the EC opened new in-depth investigations into transactions in the copper refining and engineering sectors.
McDermott’s Annual European Competition Review summarizes key developments in European competition rules. During the previous year, several new regulations, notices and guidelines were issued by the European Commission. There were also many interesting cases decided by the General Court and the Court of Justice of the European Union. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.
In our super-connected age, we can be inundated by information from numerous sources and it is difficult to select what is really relevant to one’s business. The purpose of this review is to help general counsel and their teams to be aware of the essential updates.
This review was prepared by the Firm’s European Competition Team in Brussels and Paris. Throughout 2019 they have monitored legal developments and drafted the summary reports.
The US Federal Trade Commission today announced increased thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and for determining whether parties trigger the prohibition against interlocking directors under Section 8 of the Clayton Act.
Notification Threshold Adjustments
The US Federal Trade Commission (FTC) announced revised thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) pre-merger notifications on January 28, 2020. These increased thresholds will become effective on February 27, 2020. These new thresholds apply to any transaction that closes on or after the effective date.
The US antitrust regulators continue to challenge consummated transactions. On January 3, 2020, the FTC filed an administrative complaint against Axon Enterprise, Inc., challenging its consummated acquisition of VieVu, a body-worn camera competitor, from Safariland. The FTC also challenged non-compete agreements that Axon and Safariland signed in connection with the acquisition. The complaint demonstrates the FTC’s continued focus on challenging consummated transactions, and on defining “price discrimination markets” around sets of customers with unique needs. The FTC’s challenge also shows that merging parties should avoid signing non-compete agreements that are not reasonably limited in scope and duration. If these agreements are not appropriately tailored to achieving a legitimate business interest, the FTC may challenge them as anticompetitive.
California Attorney General Xavier Becerra (AG Becerra) announced on Friday, December 20, 2019, the terms of a comprehensive settlement agreement reached with Sutter Health (Sutter), the largest hospital system in Northern California.
For the first time since the Department of Justice Antitrust Division (DOJ) published non-horizontal merger guidelines in 1984, the DOJ and Federal Trade Commission (FTC) issued updated Vertical Merger Guidelines to explain how the antitrust agencies analyze vertical mergers. The guidelines were published in draft on January 10, 2020, and are now open for a 30-day public comment period.
WHAT HAPPENED:
The DOJ and FTC released draft guidelines outlining the principal analytical techniques, practices and enforcement policies the antitrust agencies will use to analyze vertical mergers and acquisitions. Vertical mergers combine firms or assets that operate at different stages of the same supply chain. For example, vertical mergers or acquisitions could combine companies such as:
a satellite maker and a payload provider;
an automaker and an aluminum supplier;
an automaker and an automotive retailer;
a filmmaker and a cable television company; or
a pharmaceutical company and a chemical company making active pharmaceutical ingredients.
The merging companies do not compete with each other, but rather work with each other through the supply of inputs, distribution or other business services. The draft guidelines are relatively limited in scope and do not significantly expand the theories and issues that US antitrust regulators have been applying to vertical mergers for several years. That said, having these theories on paper will provide helpful guideposts in assessing potential transactions. At the FTC, the two Democratic Commissioners abstained from voting to release the guidelines, issuing Dissenting Statements instead.
The draft guidelines rely on the well-established principles in the Horizontal Merger Guidelines on how to define product markets and measure concentration levels. The guidelines establish a safe harbor if the companies have a share of less than 20% in the relevant market(s), but set no presumption of anticompetitive harm if market shares are higher than that. The focus of these new draft vertical merger guidelines is on the competitive effects analysis and not on shares or any formulaic assessment. The basic concern is whether combining two companies at different levels in a supply chain will enable the combined company to lessen competition at one of the levels.
Unilateral Effects
First, the guidelines discuss potential unilateral anticompetitive effects from vertical mergers under two theories: (1) foreclosure/raising rivals’ costs and (2) access to competitively sensitive information.
Raising rivals costs / foreclosure. The first theory suggests that “[a] vertical merger may diminish competition by allowing the merged firm to profitably weaken . . . one or more of its actual or potential rivals in the relevant market by changing the terms of those rivals’ access to one or more related products.” Alternatively, the merged firm could refuse to supply rivals altogether, foreclosing their access to a necessary product or service. The guidelines lay out the following key conditions for a foreclosure theory:
The foreclosure makes it more difficult for the company that is foreclosed to compete effectively.
The newly merged firm is likely to win more business if it denies or disadvantages the [...]
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