ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
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THE LATEST: Federal Judge Blocks Merger of Nuclear Waste Disposal Companies Rejecting “Failing Firm” Defense

by | Jul 18, 2017 | ,

On June 21, 2017, US District Judge Sue L. Robinson blocked EnergySolutions, Inc.’s proposed acquisition of Waste Control Specialists LLC (WCS), applying a strict standard for the “failing firm” defense to a merger challenge. The parties compete in the disposal of low level radioactive waste (LLRW). WCS had argued that it would be forced to exit the market due to heavy operating losses if the transaction were not approved. Judge Robinson’s recently released opinion provides insights into how aggressively a putative failing firm must shop its assets to third parties before it can qualify for the failing firm defense to an otherwise anticompetitive merger.

WHAT HAPPENED:
  • The US Department of Justice (DOJ) filed suit in November 2016 to enjoin the proposed acquisition of WCS by EnergySolutions, arguing that the merger would lead to a substantial lessening of competition in the LLRW disposal industry. DOJ alleged that EnergySolutions and WCS are the only significant competitors in this industry for the relevant geographic market.
  • The court found that the government easily established a prima facie case of anticompetitive effects by demonstrating that the proposed acquisition would create a firm controlling an exceedingly high percentage of the relevant market and result in a significant increase in market concentration. Judge Robinson identified two product markets: the disposal of higher-activity LLRW, and the disposal of lower-activity LLRW. In both markets she found that the relevant measures of concentration “blow past the presumptive barriers” for harm to competition, especially in regards to higher-activity LLRW where the transaction would result in a “merger to monopoly.” 
  • The defendants’ main defense to rebut the government’s prima facie case was that WCS was a “failing firm.” The failing-firm doctrine considers the possible harm to competition resulting from an acquisition preferable to the negative impact on competition, loss to stockholders, and negative effect on local communities that results when a company goes out of business. Judge Robinson’s opinion explains that in order to assert a valid failing firm defense, the defendants must show that WCS faces the “grave possibility of business failure” and that there was no “other prospective purchaser.” 
  • Judge Robinson avoided deciding the more difficult question concerning whether WCS indeed faced imminent business failure, finding instead that the defendants failed to demonstrate that EnergySolutions was the only available purchaser. According to Judge Robinson, WCS’s parent company failed to make the necessary “good faith efforts to elicit reasonable alternative offers” that would have lesser negative effects on competition. 
  • The opinion highlights the fact that once it was clear that the parent company was serious about selling all of WCS, the parent company had already agreed to several deal protection devices, such as a 30-day exclusivity period with EnergySolutions, and a “no-talk” provision in the merger agreement. WCS and its parent company thus did not respond to other companies that reached out to express interest in acquiring WCS after the transaction with EnergySolutions was [...]

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THE LATEST: DOJ Price-Fixing Probe Demonstrates That Deal Risk Is Not the Only Antitrust Concern Merging Parties Should Keep in Mind

by | Jun 15, 2017 | , , , ,

Bumble Bee Foods, and two of its senior vice presidents, have recently pled guilty to US Department of Justice (DOJ) charges that they engaged in a conspiracy to fix prices of shelf-stable tuna fish sold in the United States from 2011 to 2013. Bumble Bee agreed to pay a $25 million criminal fine that can increase to $81.5 million under certain conditions, and the company’s two senior vice presidents pled guilty and agreed to pay criminal fines as well. The investigation appears to have been prompted by information that the DOJ uncovered during its investigation of Thai Union Group’s (owner of Chicken of the Sea) proposed acquisition of Bumble Bee, which was abandoned after DOJ concerns.

WHAT HAPPENED:
  • On December 19, 2014, Thai Union Group, the largest global producer of shelf-stable tuna, announced that it had agreed to acquire Bumble Bee Foods for $1.5 billion. A year later, on December 3, 2015, the DOJ announced that the parties had abandoned the transaction after the DOJ expressed concerns that the acquisition would harm competition. The DOJ stated that “Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands, as well as combined the first and second largest domestic sellers of other shelf-stable seafood products.”
  • Beyond its comments about the potential for competitive harm from the transaction, however, the DOJ further noted that “[o]ur investigation convinced us – and the parties knew or should have known from the get go – that the market is not functioning competitively today, and further consolidation would only make things worse.”
  • It appears that the DOJ’s concerns that the market for packaged seafood was not functioning competitively spurred the government to proceed with an investigation into potential collusion among the suppliers of packaged seafood. After its investigation, the DOJ concluded that Bumble Bee Foods, two of its senior vice presidents, and other co-conspirators “discussed the prices of packaged seafood sold in the United States[,] agreed to fix the prices of those products [and] negotiated prices and issued price announcements for packaged seafood in accordance with the agreements they reached.”
WHAT THIS MEANS:
  • In the Mergers & Acquisitions context, the merging parties are most often concerned with the potential risk that antitrust concerns may pose to the deal and the ability to obtain DOJ or Federal Trade Commission (FTC) clearance for the transaction. This criminal investigation by the DOJ demonstrates that the parties need to be aware of their conduct in the market, whether they have engaged in conduct that may be found to be collusive, and the potential consequences of such conduct [...]

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THE LATEST: Enforcers Continue Recent Focus on Innovation Concerns with Emerson/Pentair Consent Agreement

by and | May 4, 2017 | , ,

The FTC’s recent consent agreement addressing concerns regarding Emerson Electric Co.’s (Emerson) acquisition of Pentair Plc (Pentair) demonstrates a continued focus on whether transactions will reduce the incentive for merging parties to develop new, innovative products in the future. This is the latest in a string of cases which show that when the antitrust regulators raise innovation concerns, the merging parties need to propose a remedy that will involve the necessary research and development resources for the products at issue.

WHAT HAPPENED:
  • The FTC alleged that the acquisition combines the two largest suppliers of switchboxes, which monitor and control certain valves that regulate the follow of liquids through pipes in industrial applications.
  • The FTC found that switchbox customers have a distinct preference for Pentair’s and Emerson’s switchbox brands, which account for approximately 60 percent of the switchbox market in the United States.
  • The FTC was concerned that the transaction would reduce innovation in the switchbox industry.
  • The parties reached a consent agreement whereby Emerson would divest Pentair’s switchbox manufacturer subsidiary, including all facilities, personnel, and intellectual property associated with Pentair’s design and manufacturing of switchboxes.
WHAT THIS MEANS:
  • The Emerson/Pentair transaction is the latest in a string of transactions where regulators in the US and the EU have raised concerns that a transaction would lead to less innovation in the relevant market.
    • In 2015, Applied Materials abandoned its acquisition of Tokyo Electron after the DOJ raised concerns that the transaction would lessen competition for products in the merging parties’ pipelines and decrease the incentive for innovation generally.
    • The DOJ’s 2016 complaint to block the Halliburton/Baker Hughes transaction emphasized that the merging parties “possess unrivaled product portfolios, research and innovation capabilities, and the scope and scale necessary to address the most difficult technological challenges facing the oil and gas industry they serve.”
    • In March of this year, the European Commission cleared the merger of Dow and DuPont on the condition that the merging parties would divest DuPont’s global pesticide research and development division due to concerns that the transaction would have reduced the number of players that “are globally active throughout the entire research and development (R&D) process.”
  • These cases show two significant trends:
    • First, the agencies are likely to investigate not only reductions in competition among existing products, but also whether potential transactions combine competing innovation sources in an industry.
    • Second, regulators with innovation concerns will seek remedies that divest stand-alone business units that deal with the products at issue, including any necessary research and development resources. Merging parties that are structured with separate research and development departments that address multiple product lines may need to develop a creative solution that alleviates a regulator’s concerns about future innovation.


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McDermott Releases 1Q2017 Antitrust M&A Snapshot

by and | Apr 21, 2017 | , , , ,

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.

Read McDermott’s 1Q2017 M&A Snapshot.



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THE LATEST: Limiting Early Discovery in Parallel Criminal and Civil Cases

by , and | Apr 20, 2017 | , ,

Companies are increasingly facing parallel proceedings involving government investigations and follow-on private litigation. These complex cases often involve competing interests between the parties that can influence a judge’s determination on discovery timing and process.

  • Private plaintiffs are incentivized to obtain as much information about the case as early as possible to support their allegations and avoid having the case dismissed on summary judgment.
  • Defendants hope to delay, or save altogether, the expenditure of potentially millions in discovery costs.
  • The government has a strong interest in preserving the confidentiality and integrity of their investigation without interference from civil plaintiffs. (more…)


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THE LATEST: Entanglements and Concentrated Markets Require Divestiture in the Dairy Industry

by and | Apr 13, 2017 | , ,

On July 6, 2016, Danone S.A. (Danone) agreed to acquire The WhiteWave Foods Company (WhiteWave) for $12.5 billion.

WhiteWave is the leading manufacturer of fluid organic milk in the United States and one of the top purchasers of raw organic milk. Danone is the leading US manufacturer of organic yogurt (Stonyfield). Nearly 90 percent of the raw organic milk used by Danone to manufacture organic yogurt is supplied via a strategic agreement by CROPP Cooperative (CROPP). As of 2009, the strategic supply agreement between Danone and CROPP also includes Danone providing CROPP with an exclusive license for the production and sale of Stonyfield branded fluid organic milk.

WhiteWave and CROPP are the two largest purchasers and top competitors for purchasing raw organic milk from farmers in the Northeast US. Additionally, WhiteWave, CROPP and Danone-CROPP are the only nationwide competitors for the sale of fluid organic milk to retailers and have a 91 percent share of nationwide branded fluid organic milk: Horizon (WhiteWave), Organic Valley (CROPP) and Stonyfield (Danone-CROPP). (more…)



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THE LATEST: Losing Bidder for Pharmaceutical Triggers FTC Investigation, Fix, and $100 Million Fine in Non-HSR-Reportable Transaction

by and | Mar 13, 2017 | , , ,

A private lawsuit filed by Retrophin Inc. (Retrophin), under then-CEO Martin Shkreli, likely triggered an investigation by the FTC into a consummated transaction.  Both the private lawsuit and the FTC complaint resulted in settlement.  In addition, the FTC levied a $100 million penalty.

WHAT HAPPENED:
  • In 2013, Questcor Pharmaceuticals, Inc. (Questcor) acquired the U.S. rights to Synacthen Depot (Synacthen) from Novartis (Mallinckrodt later acquired Questcor).
  • Questcor’s $135 million deal with Novartis out-bid several companies seeking to acquire Synacthen, including biopharmaceutical company Retrophin, who bid $16 million for the Synacthen license.
  • In 2014, Retrophin (under then-CEO Martin Shkreli) filed suit against Questcor, alleging that the purpose of the transaction between Questcor and Novartis was to eliminate competition for Achthar, Novartis’ ACTH drug used to treat infantile spasms and nephrotic syndrome, by shutting down Synacthen.
  • Retrophin’s case was settled in 2015 with Mallinckrodt (who acquired Questcor in the interim) paying Retrophin $15.5 million.
  • There are reports that the FTC challenged the consummated transaction of Questcor/Novartis following Retophin’s lawsuit. The FTC’s challenge recently resulted in a $100 million monetary payment and licensing of Synacthen for treatment of infantile spasms and nephrotic syndrome to an FTC approved licensee.
WHAT THIS MEANS:
  • Even if a transaction is non-reportable under the Hart-Scott-Rodino (HSR) Act, the FTC or DOJ may open an investigation into the transaction. The Questcor/Novartis transaction was not reported under the then-existing HSR rules because Novartis, the licensor, retained some manufacturing rights to Synacthen.
  • The FTC and DOJ may learn about potentially anticompetitive transactions in numerous ways, including HSR filings, news reports, complaints from disgruntled customers or competitors, private litigation involving the transaction, and as shown here, from the losing bidder.
  • HSR clearance or a determination that a transaction is not HSR reportable does not mean that the transaction is free and clear of government antitrust investigations or private litigation.


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Flurry of Antitrust Merger Enforcement Actions as Obama Presidency Comes to a Close

by | Feb 2, 2017 | , ,

The Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ) announced several antitrust enforcement actions in advance of the inauguration of President Trump, including settlements for failures to file under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), a challenge to an unreportable deal and a settlement of a “gun-jumping” claim under the HSR Act. These cases illustrate the importance of compliance with the often complex reporting, waiting period and substantive aspects of antitrust laws in connection with acquisitions of various types, whether or not those acquisitions require premerger reporting. Failure to comply can result in significant financial penalties.

Two HSR “Failure to File” Settlements. On January 17, 2017, the FTC announced two settlements for failures to submit HSR filings and observe the statutory waiting period under the HSR Act prior to consummating acquisitions that met the relevant thresholds. The HSR Act requires notification of certain acquisitions of voting securities, assets and non-corporate interests if the value held as result of the transaction is in excess of certain notification thresholds and size of person thresholds (if applicable), and the transaction is not otherwise exempt. Parties to reportable transactions must observe the statutory waiting period prior to closing. If they fail to file, or otherwise do not observe the waiting period under the HSR Act, the parties may be liable for civil penalties of up to $40,654 per day (which was recently increased from $40,000, effective February 24, 2017).

In the first settlement, Ahmet Okumus agreed to pay $180,000 in connection with failing to notify for his purchases of voting securities of Web.com Group, Inc. (Web.com). According to the complaint, in September 2014, Okumus acquired voting securities of Web.com and as a result, held approximately 13.5 percent of the voting securities of Web.com. Okumus continued to acquire voting securities of Web.com through November 2014. Okumus did not file an HSR notification prior to making these acquisitions, relying on the “investment only” exemption, which exempts acquisitions resulting in holdings of 10 percent or less of the issued and outstanding voting securities if the shares are held solely for the purpose of investment (see 15 U.S.C. § 18a(c)(9) and 16 C.F.R. § 802.9). However, because Okumus held in excess of 10 percent, this exemption was not applicable. In late November of 2014, Okumus made a corrective filing that allowed him to acquire additional Web.com voting securities for approximately five years, provided that the value of the voting securities he held as a result of any acquisition did not exceed the $100 million (as adjusted) notification threshold. In a letter that accompanied his corrective filing, he indicated that the failure to file was inadvertent. The FTC did not seek civil penalties in that instance.

In June of 2016, Okumus began acquiring additional voting securities of Web.com. Later that month he acquired 236,589 voting securities of Web.com, and as a result of that acquisition, Okumus held voting securities valued (per the HSR rules) in excess of the $100 million (as [...]

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Antitrust M&A Snapshot: October – December 2016 Update

by , and | Jan 30, 2017 | , , , , ,

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.

Read the full report here.

 



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DOJ and FTC Release New Antitrust Guidelines for International Enforcement and Cooperation

by and | Jan 20, 2017 | ,

On Friday, January 13, 2017, the Department of Justice (DOJ) and Federal Trade Commission (FTC) released the new Antitrust Guidelines for International Enforcement and Cooperation. These guidelines were jointly developed by the agencies and serve to update the Antitrust Enforcement Guidelines for International Operations that have been in place since April 1995. The new guidelines include a revised discussion on conduct involving foreign commerce, a new chapter on international cooperation, and updated language, case law, and illustrative examples throughout.

Read the full article here.



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