Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in DOJ Antitrust Highlights

On April 3, 2017, the Department of Justice (“DOJ”) announced that that it forced Danone to divest its Stonyfield Farms business in order for Danone to proceed with its $12.5 billion acquisition of WhiteWave.

Prior to the merger, Danone did not produce or sell organic milk in the United States, however, it produced and sold organic yogurt through its United States subsidiary, Stonyfield Farms. WhiteWave produces and sells organic milk and yogurt in the United States.

According to the DOJ’s complaint, however, as a result of Danone’s long-term strategic partnership and supply and licensing agreements with CROPP Cooperative (“CROPP”), WhiteWave’s primary competitor, the proposed acquisition would have provided incentives and opportunities for cooperative behavior between the two leading purchasers of raw organic milk in the northeast (CROPP and WhiteWave”), which likely would have resulted in farmers receiving less favorable contract terms for the purchase of their raw organic milk.  So, the DOJ had buyer power concerns.

On March 23, 2017, the U.S. Department of Justice (“DOJ”) announced that it reached a settlement that will prohibit DIRECTV Group Holdings, LLC (“DirecTV”) and its parent corporation, AT&T Inc. (“AT&T”), from illegally sharing confidential, forward-looking information with competitors.

On November 2, 2016, the DOJ’s Antitrust Division filed suit alleging that DirecTV was the ringleader of a series of unlawful information exchanges between DirecTV and three of its competitors – namely, Cox Communications Inc. (“Cox”), Charter Communications Inc. (“Charter”) and AT&T (before it acquired DirecTV) – during the companies’ negotiations to carry the SportsNet LA “Dodgers Channel.”

SportsNet LA holds the exclusive rights to telecast almost all live Dodgers games in the Los Angeles area.  According to the complaint, DirecTV’s Chief Content Officer, Daniel York, unlawfully exchanged competitively-sensitive information with his counter-parts at Cox, Charter and AT&T while they were each negotiating with SportsNet LA for the right to telecast the Dodgers Channel.  Specifically, the complaint alleges that DirecTV and each of these competitors agreed to and exchanged non-public information about their companies’ ongoing negotiations to telecast the Dodgers Channel, as well as their companies’ future plans to carry – or not carry – the channel. The complaint also alleges that the companies engaged in this conduct in order to unlawfully obtain bargaining leverage and to reduce the risk that they would lose subscribers if they decided not to carry the channel but a competitor chose to do so. The complaint further alleges that the information learned through these unlawful agreements was a material factor in the companies’ decisions not to carry the Dodgers Channel. The Dodgers Channel is still not carried by DirecTV, Cox or AT&T. The DOJ allegations make out a buyer conspiracy case that violate Section 1 of the Sherman Act.  The DOJ further claims that the illegal information sharing corrupted the competitive bargaining process and likely contributed to the lengthy blackout.

Anthem Cigna Merger Blocked

February 8, 2017

On February 8, 2017, Judge Jackson blocked Anthem Inc.’s (“Anthem”) acquisition of Cigna Corp. (“Cigna”) finding that the merger would likely harm competition.  The district court wholly refuted the parties’ argument that efficiencies would be pro-consumer and a counter-weight to potential competitive problems.  U.S. District Court Judge Amy Berman Jackson also recognized the highly abnormal relationship between Anthem and Cigna, saying the Department of Justice’s Antitrust Division (“DOJ”) was not the only party in the case raising questions about the merger.

On January 18, 2017, the Justice Department’s Antitrust Division (“Antitrust Division”) announced a $600,000 civil settlement against Duke Energy for illegal “gun-jumping” violations of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”).

The HSR Act requires that parties to certain acquisitions notify the antitrust enforcement agencies and observe a waiting period before consummating the transaction or transferring beneficial ownership of a business.  Duke Energy prematurely obtained beneficial ownership over a power plant through a tolling agreement before filing its HSR pre-notification form and observing the HSR waiting period.

Background

About a week before taking office, President-elect Trump had two high level meetings with CEOs of companies that are involved in significant acquisitions currently under antitrust review by the Department of Justice’s Antitrust Division.  The meetings raise questions about the integrity and independence of the DOJ’s merger reviews going forward under a Trump administration. 


AT&T/Time Warner

On January 12, 2017, AT&T Inc. (“AT&T”) Chief Executive Officer Randall Stephenson said that in his meeting with President-elect Donald Trump they touched on job creation, investment and competition, but he noted that AT&T’s merger with Time Warner Inc. (“Time Warner”) did not come up.  We find that hard to believe given President-elect Trump’s open reservations about the transaction and his ongoing battle with CNN.

On October 26, 2016, the DOJ announced that it will require Westinghouse Air Brake Technologies Corporation (“Wabtec”) to divest Faiveley Transport North America’s (“Faiveley”) entire U.S. freight car brakes business in order for Wabtec to proceed with its proposed approximately $1.8 billion acquisition of Faiveley Transport S.A. and Faiveley Transport North America.

The acquisition as originally proposed would have eliminated Faiveley as one of only three major companies that supplies freight car brake components in the United States and eliminated Faiveley as a pipeline competitor in the development, manufacture and sale of freight car control valves – essentially freezing a century-old duopoly in that market.

The proposed settlement includes a divestiture of Faiveley’s entire U.S. freight car brakes business which develops, manufactures and sells freight car brake systems and components including: air brake control valves, hand brakes, slack adjusters, truck-mounted brake assemblies, empty load devices and brake cylinders.  The divestiture also includes Faiveley’s FTEN control valve, a freight car brake control valve under development that will be available for full commercialization after approval from the Association of American Railroads. The DOJ required the sale to be made to a single buyer to be approved by the Antitrust Division.

On August 31, the Department of Justice’s Antitrust Division (“DOJ”) filed a lawsuit in the U.S. District Court for the Northern District of Illinois to block Deere & Company’s (“Deere”) proposed $190 million acquisition of Precision Planting LLC (“Precision Planting”) from Monsanto Company in order to preserve competition in the market for high-speed precision planting systems in the United States.

DOJ Complaint

High-speed precision planting is an innovative technology that enables farmers to plant corn, soybeans and other row crops at up to twice the speed of a conventional planter.

On August 23, 2016, Senate Judiciary Committee Chairman Chuck Grassley announced a hearing on the increasing consolidation within the seed and chemical industry.

The hearing will be held in late September.  Senator Grassley said that “The seed and chemical industries are critical to agriculture and the nation’s economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy.” The hearing will focus on the transactions currently being reviewed by antitrust regulators, and the current trend in consolidation of the seed and chemical industries.

While details have not been finalized, views from the companies under review by antitrust regulators, consumers and antitrust experts will all be represented at the hearing.  “In most instances when you have less competition, prices go up, and consumers pay more,” he said in an interview.

On August 16, 2016, Senator Charles Grassley (R-IA), chairman of the Senate Judiciary Committee, wrote a letter to FTC Chairwoman Edith Ramirez and DOJ Antitrust Division Head, Renata Hesse in which he expressed concerns regarding two major mergers in agricultural technology and seeds that could potentially hurt competition in the industry and make it harder for smaller companies to compete.

The senator urged the FTC, which is reviewing the purchase of Syngenta AG (“Syngenta”) by the China National Chemical Corporation (“ChemChina”), and the DOJ, which is analyzing the merger of The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”), to coordinate their reviews.  Senator Grassley wrote that “it is important that these transactions not be reviewed in isolation.”   He urged the DOJ and FTC to collaborate and to gain input from the Department of Agriculture as part of their analysis of the agricultural biotechnology and seed industry and the competitive impact of these deals.

Senator Grassley also expressed concern that “the convergence of these proposed transactions – as well as others currently being discussed – will have an enhanced adverse impact on competition in the industry and raise barriers to entry for smaller companies”; “further concentration in the industry will impact the price and choice of chemicals and seed for farmers, which ultimately will impact choice and costs for consumers”; and “further consolidation will diminish critical research and development initiatives.”

On July 21, the U.S. Department of Justice’s Department of Justice (“DOJ”) and several state attorneys general filed two lawsuits, challenging two major health insurer mergers: (1) Anthem, Inc.’s (“Anthem”) proposed $48.4 billion purchase of Cigna Corporation (“Cigna”) and (2) Aetna Inc.’s (“Aetna”) planned $37 billion acquisition of Humana Inc. (“Humana”).

While the cases are substantially different, both complaints contain some similar allegations.  Both complaints describe the proposed mergers as consolidation of the “big five” insurers to the “big three, each of which would have almost twice the revenue of the next largest insurer.”   Taken together, they would cut the number of major health insurers from five to three, with UnitedHealth Group Incorporated (“UnitedHealth”) being the only other remaining large player.  Both complaints say the mergers will harm competition by “eliminating two innovative competitors – Humana and Cigna – at a time when the industry is experimenting with new ways to lower healthcare costs.”  Both complaints allege that the mergers will restrain competition in the sale of individual policies on the public insurance exchanges.

However, the cases are different in that they focus on different product and geographic markets and that the Anthem/Cigna complaint contains a monopsony claim while the Aetna/Humana complaint does not.  The Anthem/Cigna complaint alleges that that merger will restrain competition in the “purchase of healthcare services by commercial health insurers,” as well as the sale of commercial health insurance to national accounts and large-group employers, and the sale of individual policies on the public insurance exchanges.  The Anthem/Cigna complaint also includes an allegation that the merger would substantially increase Anthem’s ability to dictate the reimbursement rates it pays hospitals, doctors, and healthcare providers, threatening the availability and quality of medical care.  The DOJ alleges that Anthem already has bargaining leverage over healthcare providers and this acquisition would make the situation worse in 35 metropolitan areas.  This is otherwise known as a monopsony theory.   The Aetna/Humana complaint alleges anticompetitive effects only in the sale of Medicare Advantage policies to individual seniors and the sale of individual polices on the public exchanges.   The Aetna complaint does not charge a violation in the market for the purchase of healthcare services, and therefore does not rely on a monopsony theory.  Even where the complaints overlap with respect to product market as is the case with the sale of individual policies on the public insurance exchanges, the geographic markets are different.