Antitrust Lawyer Blog

Commentary on Current Developments

We are increasingly aware of how mergers often cost consumers and the economy in less competition, higher prices and less choice.  Fortunately, the Antitrust Division of the Justice Department (“DOJ”) has been more willing to go to court and block deals that will harm consumers.  The DOJ should remind itself of the vital role of tough merger enforcement when it looks at the proposed merger between ABI and SABMiller.

A straightforward merger between the two would raise antitrust alarm bells that would awaken the dead.  Together, the companies control over 70% of the U.S. market by volume and 65% of the market by sales value.[1]  Recognizing such a deal would be a nonstarter, ABI has suggested that any competitive concerns in the United States will disappear because MolsonCoors will acquire control of the MillerCoors joint venture.  Of course, the DOJ has become increasingly skeptical of negotiated attempts to restructure a market to resolve competitive concerns for deal approval – recently rejecting a massive divestiture in Comcast/Time Warner — and as we explain below they should do the same in this deal unless there are substantive amendments.

There is a tremendous amount at stake in this merger.  The increased size and scope of ABI on a global basis will likely have effects in the U.S. market.  Molson Coors taking over the control of the MillerCoors portfolio may also result in significant changes in how the business operates today.  Moreover, economic studies have shown a simple truth – increased beer consolidation leads to higher prices.[2]  The recent expansion of the high end U.S. craft beer market is remarkable in light of the 2007-2008 big brewer (ABI and MillerCoors) mergers thanks to a robust and independent distribution market which has facilitated the explosion of craft beer entry.[3]  But the craft beer segment is increasingly threatened by ABI’s acquisitions of independent craft brewers and increasing efforts to cut off distribution of competition brands within the ABI aligned distribution channels.  Not only is ABI the largest U.S. brewer, it is also the largest U.S. distributor – currently controlling over 135 million cases with $3 billion in sales across distributorships in multiple states.[4]

On Monday, October 26, 2015, in a joint statement, the Federal Trade Commission and the U.S. Department of Justice urged the state of Virginia to reform or repeal its certificate-of-need (CON) law.

CON laws typically require hospitals to obtain government approval before undergoing expansion projects or purchasing major assets, including hospital equipment.  Virginia is known to have one of the most restrictive CON laws in the country, and the antitrust enforcement agencies recently have addressed the possible negative effects such laws have on competition, stating that CON laws may impede on healthcare providers’ abilities to provide efficient and effective services for consumers and may hinder competition by creating barriers to entry, limiting consumer choice, and stifling innovation.

In the joint statement, the enforcement agencies cited several studies that show that CON laws have not been effective at controlling costs or improving quality for consumers and indicated that more targeted measures might better address such goals.  While Virginia has an established working group tasked with addressing the issues surrounding CON laws, no final decisions have been made on the status of the state’s current CON law.

On Monday, October 26, 2015, U.S. Senators Richard Blumenthal (D-Conn.), Mike Lee (R-Utah), Amy Klobuchar (D-Minn.) and Orrin G. Hatch (R-Utah) sent a letter to the Federal Trade Commission (“FTC”) Chairwoman, Edith Ramirez, requesting that the FTC investigate possible illegal collusion by saline solution manufacturers.

In their letter, the senators noted that there has been a shortage of saline solution in the United States since 2013 and that the three companies that provide all the saline solution for the United States, Baxter, Hospira, and B. Braun, have failed to end the shortage.  The senators further claim that such activity may be the result of collusive behavior by the manufacturing companies to exploit the shortage of saline solution to increase their own profits and that this activity has resulted in higher costs to hospitals, patients, and the overall healthcare system.  The letter also states that hospitals have reported that Baxter, Hospira, and B. Braun have each imposed greater price increases (200-300%) since the shortage began.  The senators also state that the manufacturers on saline solution customers who do not also purchase additional non-saline products, effectively claiming that the manufacturers may be illegally tying the products.

Given the rising costs of healthcare, the FTC should ensure that anticompetitive conduct does not further increase those costs.  Therefore, the senators urge the FTC to investigate the troubling allegations to determine whether the saline suppliers’ apparent anticompetitive conduct is harming consumers and running afoul of the antitrust laws.

On September 16, 2015, the Department of Justice’s Antitrust Division (“DOJ” or “Antitrust Division”) issued a statement regarding it decision to close its six month investigation of Expedia’s $1.3 billion acquisition of Orbitz. The decision means that Expedia can close its acquisition of Orbitz to combine two of only three online travel agencies (“OTAs”) in the United  States.

Second Request

The transaction was announced on February 12, 2015 and the Antitrust Division issued a second request on March 25, 2015.  The transaction drew antitrust scrutiny because it came on the heels of Expedia’s acquisition of Travelocity in a deal that was cleared via early termination of the Hart-Scott-Rodino (“HSR”) waiting period on January 14, 2015.  That transaction reduced the number of sizable OTAs in the United States from the four-to-three, and consolidated 56% of the market in the hands of the enlarged Expedia.  The DOJ scrutinized the Expedia/Orbitz deal because the transaction presented a three-to-two situation, in which the combined Expedia/Orbitz would possess a commanding 75% of the OTA space in the United States, leaving just Priceline as a sizable alternative with roughly 19% share of the space.

On August 4, 2015, the Federal Trade Commission (“FTC”) issued its Best Practices for Merger Investigations.  The Best Practices provide guidance to merging parties on steps they can work cooperatively with the staff by engaging in early discussions, determining effectively when to pull and refile an HSR notification form, narrowing Second Requests, engage in a quick look review and modify Second Requests. 

Engage the Staff Early

The FTC guidance encourages merging parties to engage the staff early during the initial waiting period or even before the HSR filing.  Antitrust counsel should provide strategic plans, product catalogs, top 10 customer lists, competitor information, market shares, helpful ordinary course of business documents and anything else pertinent to the potential competitive issues.  Most of this information would be requested in a voluntary access letter anyway so providing these materials in advance of a request may preempt a prolonged investigation or save time by helping the staff narrow the areas of concern.

On May 29, 2015, the Federal Trade Commission (“FTC”) issued an administrative complaint alleging that Steris Corporation’s (“Steris”) proposed $1.9 billion acquisition of Synergy Health plc (“Synergy”) would violate the antitrust laws by significantly reducing future competition in regional markets for sterilization of products using radiation, particularly gamma or x-ray radiation.

Background

On October 13, 2014, Steris, headquartered in Mentor, Ohio, announced its intention to acquire Synergy, headquartered in the United Kingdom.  On January 9, 2015, the parties received request for additional information and documentary material (“second requests”).  On April 30, 2015, the parties announced that they certified compliance and entered into a timing agreement where they agreed to close the combination before June 2, 2015, unless the FTC closes the investigation before June 2nd.

On April 27, 2015, the Department of Justice’s (“DOJ”) Antitrust Division released a statement regarding Applied Materials Inc. (“AMAT”) and Tokyo Electron’s (“TEL”) joint announcement that they abandoned their merger.  The Antitrust Division’s statement indicates that the transaction was blocked because the combination would have diminished innovation.  In other words, the Antitrust Division was concerned about the potential loss of head to head competition in the development of future cutting edge semiconductor products and made no allegation that the combined firm would have monopolized any existing or actual product market.  The Antitrust Division’s tough stance against AMAT indicates that it is willing to scrutinize and challenge deals that raise longer-term anticompetitive concerns related to future competition even if there is no past pricing evidence that may predict that the merger will result in higher prices regarding actual products.

Background

On September 24, 2013, AMAT and TEL announced a definitive agreement to merge via an all-stock combination, which valued the new combined company at approximately $29 billion.  The companies claimed that securing regulatory clearances should not be a problem because their product offerings were highly complementary with few overlaps.  Indeed, AMAT was strong in markets where Tokyo Electron was not and vice versa.  In areas, where they directly competed, the combined shares were low.  Nevertheless, the transaction would have combined AMAT, the largest semiconductor equipment supplier in the world, with TEL, the third largest equipment supplier.

On March 16, 2015, the Department of Justice (“DOJ”) and New York State Attorney General announced that they reached a settlement with Coach USA Inc., City Sights LLC and their joint venture, Twin America LLC, to remedy competition concerns in the New York City hop-on, hop-off bus tour market.  This case is noteworthy because it is the first time the DOJ’s Antitrust Division sought and obtained disgorgement in a consummated merger matter.

Background

In March of 2009, Twin America, LLC was formed by Coach USA, Inc. and City Sights, LLC.  Coach USA and City Sights were operators of double-decker tour buses that had aggressively competed against each other to attract customers, which were and are for the most part, visitors/sightseers in New York city.  Indeed, the Antitrust Division’s complaint alleged that prior to the formation of Twin America, LLC, Coach USA, the long-standing market leader through its “Gray Line New York” brand, and City Sights, a firm that launched the “City Sights NY” brand in 2005, accounted for approximately 99 percent of the hop-on, hop-off bus tour market in New York City.  Between 2005 and early 2009, the two companies engaged in vigorous head-to-head competition on price and product offerings that directly benefited consumers.

On March 13, 2015, the Federal Trade Commission (“FTC”) announced revisions to its rules regarding the FTC’s process of determining whether to continue on with an administrative challenge to a merger in the situation when it loses a preliminary injunction motion in federal court.

When the FTC seeks to challenge a transaction, the FTC generally seeks a preliminary injunction in federal court to prevent consummation of the transaction pending the outcome of an internal administrative trial.  If the injunction is implemented, it prevents the parties from integrating the assets until the conclusion of the administrative proceeding.  The preliminary injunction is important as it preserves the FTC’s ability to create an effective merger remedy in the event the FTC’s Administrative Law Judge (“ALJ”) finds that the merger violates the antitrust laws.

Under new changes to Commission Rule of Practice 3.26, if the FTC loses its request for an injunction, the pending administrative proceeding will be automatically withdrawn or stayed if the parties file a motion to have the administrative case withdrawn.  If all respondents move to have the administrative case withdrawn from adjudication, it will automatically be withdrawn two days after the motion is filed.  If any motion to dismiss the administrative complaint is filed, the administrative case will automatically be stayed until seven days after the Commission rules on the motion for dismissal.  All deadlines will be tolled for the amount of time the proceeding is stayed.  While the automatic withdrawal of the complaint and stay are characterized as new changes to FTC rules, the changes to Rule 3.26 actually reinstate the long standing practice of an automatic withdrawal from, or stay of, the administrative litigation that was in place until 2009.

The key to closing transactions that raise straightforward antitrust concerns in a relatively short time frame is the antitrust counsel’s and the merging parties’ ability to effectively cooperate with the Antitrust Division staff tasked with reviewing the transaction.

A.    Martin Marietta/Texas Industries

On June 26, 2014, the Antitrust Division approved Martin Marietta Materials, Inc.’s $2.7 billion acquisition of Texas Industries on the condition that Martin Marietta divest a quarry in Oklahoma and two Texas rail yards used by it to distribute aggregate in the Dallas area.