Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in Merger Highlights

On June 22, 2017, the Federal Trade Commission and the Attorney General of North Dakota filed a complaint to block Sanford Health’s proposed acquisition of Mid Dakota Clinic, seeking a temporary restraining order and preliminary injunction to stop the deal and to maintain the status quo pending an administrative trial on the merits of the case.

The FTC’s complaint alleges that the deal would reduce competition for adult primary care physician services, pediatric services, obstetrics and gynecology services, and general surgery physician services in the greater Bismarck and Mandan metropolitan area or four counties.

According to the complaint, Sanford and Mid Dakota are each other’s closest competitors in a four-county Bismarck-Mandan region of North Dakota, an area with a population of 125,000.  The FTC’s complaint alleges that the transaction would create a group of physicians with at least 75 to 85 percent share in the provision of adult primary care physician services (59 out of 77 physicians in the area), pediatric services (10 out of 12 physicians), and obstetrics and gynecology (15 out of 17 physicians) services.  Moreover, the complaint alleged that the merged firm would be the only physician group offering general surgery physician services in the relevant geographic market with a total of ten physicians.  In total, the two firms would combine approximately 94 physicians in the relevant geographic market.

On June 19, 2017, the Trump Administration’s Federal Trade Commission (“FTC”) authorized the staff to file an antitrust complaint to block the merger of DraftKings and FanDuel, the two largest daily fantasy sports (“DFS”) sites.  The state of California and the District of Columbia Attorneys General joined in the lawsuit.  The FTC’s legal challenge is a huge win for DFS customers.

Merger to Monopoly Tests Trump’s Antitrust Enforcement Policy

On November 18, 2016, shortly after President Trump won the election, the two largest DFS firms announced their plans to merge into a single company that would control more than 90% of the DFS market.  Regardless of the political backdrop, any merger that would result in a virtual monopoly was sure to be highly scrutinized.

On April 5, 2017, the EC approved China National Chemical Corporation’s (“ChemChina”) proposed acquisition of  Syngenta AG (“Syngenta).  The approval is conditional on the divestiture of significant parts of ChemChina’s European pesticide and plant growth regulator business.

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in Europe through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

The EC had concerns that the transaction as notified would have reduced competition in a number of existing markets for pesticides.  Furthermore, it had concerns that the transaction would reduce competition for plant growth regulators.  The EC’s investigation focused on competition for existing pesticides, since ChemChina does not compete with Syngenta for the development of new and innovative pesticides.

On April 4, 2017, the FTC entered into a settlement agreement with China National Chemical Corporation (“ChemChina”) and Syngenta AG whereby the parties agreed to divest three types of pesticides, in order to resolve antitrust concerns with its merger.

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in the United States through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

According to the FTC’s complaint, the merger as originally proposed would have caused competitive harm in the United States in three pesticide lines:

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 February 28, 2017, U.S. District Judge Emmet Sullivan ruled that Pennsylvania and the District of Columbia AGs were not entitled to $175,000 in legal fees for their efforts in the Federal Trade Commission’s (“FTC”) challenge to Staples Inc.’s proposed acquisition of Office Depot.

The FTC clearly took the lead and won a preliminary injunction under the more lenient standard under 13(b) of the FTC Act.  After winning the preliminary injunction not a permanent injunction under the Clayton Act, Staples and Office Depot abandoned their merger plans.

Pennsylvania and D.C. argued they were entitled to fees under a provision of the Clayton Act that allows for the reimbursement of legal costs when the plaintiff “substantially prevails.” Staples’ lawyers painted the AGs as mere spectators and argued that they should not be entitled to legal fees for two reasons.  First, they did not win under the Clayton Act and second, the fees were unreasonable.

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 February 16, 2017, the United States Federal Trade Commission (“FTC”) announced that energy infrastructure companies Enbridge Inc. (“Enbridge”) and Spectra Energy Corp (“Spectra”) agreed to settle FTC charges that the proposed $28 billion merger of Enbridge and Spectra likely would harm competition in the market for pipeline transportation of natural gas in three production areas off the coast of Louisiana.

According to the FTC’s complaint, the merger likely would reduce natural gas pipeline competition in three offshore natural gas producing areas in the Gulf of Mexico – Green Canyon, Walker Ridge and Keathley Canyon – leading to higher prices for natural gas pipeline transportation from those areas.  In portions of the affected areas, the FTC alleged, the merging parties’ pipelines are the two pipelines located closest to certain wells and, as a result, are likely the lowest cost pipeline transportation options for those wells.

Under the settlement with the FTC, the companies have agreed to behavioral conditions that will preserve competition in those areas.  Enbridge is the sole owner and operator of the Walker Ridge Pipeline.  Through its indirect stake in DCP Midstream Partners, LP (“DCP”), Houston-based Spectra indirectly owns a 40% interest in the Discovery Pipeline.  According to the FTC, the proposed merger will give Enbridge an ownership interest in both pipelines, which will give it access to competitively sensitive information of the Discovery Pipeline, as well as significant voting rights over the Discovery Pipeline.  Access to its competitor’s competitively sensitive information and significant voting rights would provide Enbridge with the incentive and opportunity to unilaterally increase pipeline transportation costs for natural gas producers located in the affected areas.  The exchange of information also may increase the likelihood of tacit or explicit anticompetitive coordination between the Walker Ridge Pipeline and the Discovery Pipeline.

On February 3, 2017, the U.S. Federal Trade Commission (“FTC”) released a study entitled “The FTC’s Merger Remedies 2006-2012” (“Remedy Study”). The Remedy Study, a report of the FTC’s Bureaus of Competition and Economics, examines 89 merger orders affecting 400 markets, with 79 divestitures to 121 buyers, and evaluates 50 of those orders using a case study method.  To conduct the Remedy Study, the FTC interviewed nearly 200 businesses in a wide range of industries.

The Remedy Study confirms that the FTC’s practices related to designing, drafting and implementing its merger remedies are generally effective.  At the same time, the Remedy Study identifies a number of shortcomings that the FTC needs to address to improve the remedy process.

Some of the key findings and adjustments include:

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.

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