Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in DOJ Antitrust Highlights

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.

Andre P. Barlow
Few missions are as important to the U.S. Department of Justice’s Antitrust Division as preventing anti-competitive mergers or permitting them with adequate conditions to prevent competitive harm. After all, a merger is forever — fixing it after the fact is too messy.

The DOJ is currently investigating Anheuser-Busch InBev SA/NV’s (“ABI”) acquisition of SABMiller PLC, the largest beer merger in history, as well as its proposed divestiture of SABMiller’s interest in the MillerCoors LLC Joint Venture to Molson Coors Brewing Company. These proposed transactions lock in place the two largest beer competitors in the United States while fundamentally changing the dynamics in the beer industry for smaller brewers, distributors, wholesalers and retailers. While ABI maintains that the proposed transactions do not change the competitive landscape, the DOJ knows better.

Indeed, the DOJ’s recent approach in approving Charter Communications Inc.’s acquisition of Time Warner Cable Inc. (“TWC”) and its related acquisition of Bright House Networks LLC to create New Charter, the merged firm, is instructive. Despite no geographic overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter from engaging in future anti-competitive conduct against its smaller rivals. The DOJ should take the same tough and sophisticated approach to protecting consumers from the much larger ABI/SABMiller merger and the new ownership by Molson Coors, which will create two beer giants that will dwarf its rivals.

On May 31, 2016, the American Antitrust Institute (“AAI”), Food & Water Watch (“FWW”) and National Farmers Union (“NFU”) sent a letter to the Principal Deputy Assistant Attorney General, Renata Hesse, urging the Antitrust Division of the U.S. Department of Justice (“DOJ”) to challenge the proposed Dow/DuPont merger.

The letter details the groups’ analysis of the proposed merger, which would create the largest biotechnology and seed firm in the United States. According to the AAI, FWW, and NFU, this transaction would further consolidate an already highly concentrated biotechnology industry and would likely curtail innovation, raise prices, and reduce cultivation choices for farmers, consumers and the food system.

The groups urge the DOJ to critically review the implications of the deal. Their letter outlines three major areas of concern, including eliminating head-to-head competition in the corn and soybean markets, reducing vital innovation competition, and creating a large, integrated “platform” of traits, seeds, and chemicals that would make it harder for smaller biotechnology rivals to compete.