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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European Court of Justice Provides Guidance on Scope of the Standstill Obligation Enshrined in the EU Merger Regulation

by | Jun 7, 2018 | ,

Pursuant to the EU merger control rules, a transaction that falls within the purview of the EU Merger Regulation (EUMR) must be notified to the European Commission (Commission) in advance (Article 4(1) EUMR), and must not be implemented until cleared by the Commission, known as the “standstill” obligation (Article 7[1] EUMR). A principal rationale behind the standstill obligation is to prevent the potentially negative impact of transactions on the market, pending the outcome of the Commission’s investigation.

While the standstill obligation represents a clear-cut rule, it can often be a significant challenge for businesses to apply in practice. Failure to get it right, however, can result in draconian penalties. Indeed, the Commission’s recent €124.5 million fine on Altice, which comes in the wake of a spate of enforcement actions in this arena, bears testimony to an increasingly hard stance against companies flouting the notification requirement/standstill obligation. (more…)



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THE LATEST: Just Because Your Deal Cleared Doesn’t Mean You’re in the Clear

by and | Mar 13, 2018 | ,

Dealmakers know that a critical part of the merger process is obtaining antitrust clearance from government enforcers. But, even if the antitrust enforcers review and clear a transaction, a third-party can file a private suit alleging the transaction violated the antitrust laws. Recently, an aggrieved customer did just that—it won a substantial jury verdict and is also seeking a court order to unwind the transaction nearly six years after the transaction was announced.

WHAT HAPPENED
  • On February 15, 2018, almost six years after Jeld-Wen announced an acquisition of Craftmaster Manufacturing, Inc. (CMI) in 2012, a federal jury awarded a customer, Steves and Sons (Steves), $58.6 million for antitrust damages and lost profits stemming from the acquisition. Additionally, Steves is seeking to unwind the 2012 Jeld-Wen/CMI transaction through a court order that would force Jeld-Wen to divest of assets sufficient to re-create a competitor as significant as CMI at the time of the acquisition in the doorskin market—that is, restoring competition to pre-transaction levels.
  • The Department of Justice (DOJ) reviewed, but did not challenge, Jeld-Wen’s acquisition of CMI, which reduced the number of doorskin suppliers from three to two. Interestingly, the 2012 transaction involved CMI, a company that entered the doorskin market in 2002, when it acquired divested assets because of DOJ concerns about a doorskin merger at that time.
  • One of the factors that led to DOJ clearance is that customers did not complain about the transaction. Prior to Jeld-Wen and CMI completing the transaction in 2012, Steves, entered into a long term supply agreement with Jeld-Wen.
  • After the transaction, Steves became dissatisfied with Jeld-Wen’s treatment and alleged that it received less favorable price terms, reduced product quality and output, and worse service.
  • As a result, in 2016—four years after closing—the customer filed a complaint alleging that Jeld-Wen’s acquisition of CMI violated the antitrust laws.
WHAT THIS MEANS
  • Business leaders must understand that even if antitrust enforcers clear a merger, not only can they revisit that decision, but third parties can also sue for damages or to unwind the transaction.
  • Steves did not complain about the merger until years after the transaction and yet still won a substantial verdict. This case is a reminder that business leaders must independently weigh the merits of their customer’s position (regardless of the antitrust enforcers’ posture regarding the same case) and manage the business appropriately after close to avoid a customer lawsuit.
  • Secondarily, business leaders must realize that customer lawsuits can also create significant operational issues that distract from the company’s business objectives. For example, not only may company personnel be distracted from running the business while assisting with the defense of the litigation, the company may also face significant legal costs, as well as invasive discovery. Further, a complaint filed by one private litigant could spur follow-on litigation from other aggrieved customers or third parties. Buyers should be cognizant of those risks and should consider whether mollifying any [...]

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Five Things To Know About German Merger Control

by and | Sep 25, 2017 | , ,

As reported previously, German competition law was recently amended. The amendments included with the introduction of a “size of transaction”-threshold a notable change with respect to German merger control. The following is a reminder of five important features of German merger control which you should be aware of:

The jurisdictional thresholds of German merger control are easily triggered

German merger control applies if the parties to a transaction (usually the acquirer and the target) exceeded, in the last financial year, certain turnover thresholds. In an interna­tional context, these thresholds are relatively low and easily triggered:

  • Joint worldwide turnover of all parties > € 500 million, and
  • German turnover of at least one party > € 25 million, and
  • German turnover of another party > € 5 million.

There is a new “size of transaction”-threshold

Since June 2017, German merger control can also be triggered if a newly introduced “size of transaction”-threshold is exceeded:

  • Joint worldwide turnover of all parties > € 500 million, and
  • German turnover of at least one party > € 25 million, and
  • “value of compensation” > € 400 million, and
  • The target company has “significant business activities” in Germany (which may be activities with revenues < € 5 million).

The “value of compensation” includes the purchase price and all other assets and non-cash benefits, as well as liabilities assumed by the purchaser.

Acquisition of minority shareholdings may be notifiable

Similar to the HSR Act, but different to European Union merger control and most European jurisdictions, German merger control is not limited to the “acquisition of control”. Additional triggering events are

  • The acquisition of 25% or more of the shares in a company, and
  • The acquisition of a shareholding below 25% if this, combined with other factors (e.g. the right to appoint one out of five members of the board), may have an im­pact on competition (“acquisition of ability to exercise competitively significant influ­ence”).

Review of joint venture situations

German merger control may apply in joint venture situations that are often not covered by other merger control laws:

  •  German merger control may apply to the setting up of a joint venture company, even if the joint venture will have no activities in Germany. The jurisdictional thresholds may be satisfied by the parent companies alone. While there is an exemption for transactions with “no effect in Germany”, it is interpreted very narrowly and applies only in exceptional circumstances.
  • German merger control applies to all joint venture situations where two or more par­ties acquire or continue to hold a shareholding of 25% or more. Examples:
    – A and B set up a 50/50 production joint venture.
    – A acquires sole control and a 70% shareholding, and B acquires a non-control­ling 30% shareholding.
    – A sells 75% of a fully owned subsidiary to B, and retains only a 25% minority shareholding.
    – A, B and C each own 1/3 in a joint venture company. C divests his share­holding [...]

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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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