Merger Highlights

April 30, 2018

FTC Provides Guidance on How to Resolve Future Competition Concerns in Generic Pharmaceutical Deals

On April 27, 2018, the FTC announced that Amneal Pharmaceuticals LLC (“Amneal”) may complete its acquisition of an equity share in Impax Laboratories Inc. (“Impax”) so long as Impax divests its rights and assets for ten products to three separate companies.

The FTC concluded that the proposed acquisition would have reduced competition in three markets where both Amneal and Impax competed: (1) generic desipramine hydrochloride tablets; (2) generic ezetimibe and simvastatin immediate release (“IR”) tablets; and (3) generic felbamate tablets.

The FTC also concluded that the proposed acquisition would reduce future competition in seven markets where Amneal or Impax is a current competitor and the other would have been likely to enter the market absent the acquisition: (1) generic aspirin and dipyridamole extended release (“ER”) capsules; (2) generic azelastine nasal spray; (3) generic diclofenac sodium and misoprostol delayed release (“DR”) tablets; (4) generic erythromycin tablets; (5) generic fluocinonide-E cream; (6) generic methylphenidate hydrochloride ER tablets; and (7) generic olopatadine hydrochloride nasal spray.

April 25, 2018

DOJ Forces Martin Marietta to Divest Quarries

by Doyle, Barlow & Mazard PLLC

On April 25, 2018, the DOJ announced that it will require Martin Marietta Materials, Inc. (“Martin Marietta”) to divest quarries in Georgia and Maryland in order to proceed with its proposed $1.625 billion acquisition of Bluegrass Materials Company, LLC (“Bluegrass”) from LG Panadero, L.P. of Panadero Corp. and Panadero Aggregates Holdings, LLC.

According to the DOJ’s complaint, Martin Marietta and Bluegrass produce and sell aggregate, an essential input in asphalt and ready mix concrete that is used in road building and other types of construction. The complaint alleges that, for a significant number of customers in and immediately around Forsyth and north Fulton County, Georgia, and in the Washington County, Maryland area, Martin Marietta and Bluegrass are two of only three competitive sources of aggregate qualified by the respective states’ Departments of Transportation. According to the complaint, the loss of competition between Martin Marietta and Bluegrass would likely result in higher prices and poorer customer service for aggregate customers in these areas.

Under the terms of the proposed settlement, Martin Marietta must divest Bluegrass’s Beaver Creek quarry in Hagerstown, Maryland, and all of the quarry’s assets to an acquirer approved by the United States, in consultation with the State of Maryland. Martin Marietta must also divest the lease to its Forsyth quarry in Suwanee, Georgia, and all of the quarry’s assets to Midsouth Paving, Inc., or an alternate acquirer approved by the United States.

March 23, 2018

FTC Blocks Software Merger Involving Small Competitor

by Doyle, Barlow & Mazard PLLC

On March 19, 2018, the Federal Trade Commission (“FTC”) filed an administrative complaint to block CDK Global’s ( “CDK”) proposed acquisition of Auto/Mate. The FTC alleged that the deal would violate Sections 5 of the FTC Act and 7 of the Clayton Act. The parties to the deal abandoned the deal after being faced with a lawsuit.

Background

CDK and Auto/Mate supply dealer management systems (“DMS”) software to franchise new car dealerships. Car dealerships use DMS software, a mission-critical business software to manage nearly every aspect of their business including payroll, accounting, financing and inventory. They track their services, prices, and other crucial functionalities. The top two DMS software providers, CDK, which had 41% and Reynolds & Reynolds (“Reynolds”), which had 29%, combined for about a 70% share of the DMS software market. The big two are the highest priced, and have similar business models, which include long-term contracts and significant initial and monthly fees for third-party applications (app) vendors to integrate with their respective DMS. Dealertrack, Autosoft and Auto/Mate also had competitive DMS offerings as well as others. Auto/Mate was a very small competitor with only 6% of the market. After the deal, CDK’s market share would have been 47%.

March 15, 2018

Fake News: The DOJ/AT&T Trial Will Start on Time as Scheduled

by Doyle, Barlow & Mazard PLLC

On March 15, Judge Richard Leon said “Fake News” to a report that the trial will start on Wednesday, the 21st. It will start on Monday at 10:30. The first couple of days will be devoted to evidentiary objections. Opening arguments will be on Wednesday and the Judge thinks the trial will take 6-8 weeks.

On March 13, 2018, Judge Leon denied the DOJ’s motion to limit the defendants from presenting evidence regarding Time Warner’s irrevocable offer to distributors that it would go into “baseball-style” arbitration in any carriage disputes over Turner networks and promise not to engage in any blackout of channels during arbitration for a period of 7 years. AT&T simply had the better of the arguments with respect to the commitment. Of course it is relevant and the DOJ had sufficient notice – it was in the Answer – and has had the opportunity to conduct discovery related to the commitment. The time for the DOJ to make this argument was early on before discovery started.

AT&T made a good case that Professor Shapiro’s failure to account for this commitment in his models may have been tied with the DOJ’s motion to have the Arbitration Offer removed from consideration. Apparently, Shapiro acknowledged that the commitment would benefit distributors in negotiations and that his bargaining model does not account for this market reality in deposition testimony. A major limitation of the DOJ’s otherwise very good pre-trial brief is that its arguments are theoretical and not based on the facts. It is somewhat difficult to get a handle on the strength of the DOJ’s arguments in its pre-trial briefs because many passages and key quotations are redacted. On the whole, AT&T’s pre-trial brief is stronger. It certainly appears that AT&T is poised to punch holes in the DOJ’s experts’ theories and bargaining model.

March 12, 2018

Air Medical Group Negotiates Consent Decree to Resolve FTC’s Competition Concerns

by Doyle, Barlow & Mazard PLLC

On March 7, 2018, the United States Federal Trade Commission (“FTC”) announced it entered into a settlement agreement with Air Medical Group allowing it to acquire AMR for $2.4 billion.

The two providers of ambulance services agreed to divest inter-facility air ambulance transport services in Hawaii to resolve FTC concerns that their proposed merger would likely harm competition among air ambulance transport services that transfer patients between medical facilities on different Hawaiian islands.

According to the FTC’s complaint, Air Medical Group and AMR Holdco are the only two providers of air ambulance services in Hawaii that transport patients between medical facilities on different islands. Patients depend on these services when they need medical or surgical care that is not available in their local communities, according to the complaint. Without a remedy, the acquisition is likely to lessen competition and will tend to create a monopoly in the market for inter-facility air ambulance services in Hawaii, in violation of U.S. antitrust laws. The merger as proposed would also increase the likelihood that consumers, third-party payers, or government health care providers would be forced to pay higher prices or experience a degradation in service or quality, according to the complaint. The FTC alleges that new entry into the market for inter-facility air ambulance transport services, or expansion by existing firms in adjacent businesses would not be likely, timely, and sufficient to restore the lost competition without a remedy.

March 9, 2018

Trump’s DOJ Blocks JV from Permanently Combining

by Doyle, Barlow & Mazard PLLC

On March 5, 2018, Sparton Corporation (“Sparton”) announced the termination by Sparton and Ultra Electronics Holdings plc (“Ultra”) of their July 7, 2017 merger agreement.

According to Sparton, during the review of the proposed merger by the United States Department of Justice (“DOJ”), the United States Navy (“Navy”) expressed the view that instead of the parties proceeding with the merger, each of Sparton and Ultra should enhance its ability to independently develop, produce and sell sonobuoys and over time work toward the elimination of their use of the companies’ ERAPSCO joint venture for such activities. DOJ staff then informed Sparton and Ultra that it intended to recommend that the DOJ block the merger. The parties expected the DOJ would follow this recommendation and seek an injunction in court to block the merger. As a result of the view of the Navy and the DOJ’s position, Ultra and Sparton determined it was in the best interests of the parties to proceed to terminate the merger agreement.

Also according to Sparton, the parties understand that the DOJ intends to open an investigation to evaluate their ERAPSCO joint venture. Sparton said that based on historical practice, the company anticipates the Navy will assist in funding Sparton’s transition to independently develop, produce and sell sonobuoys.

March 8, 2018

FTC Blocks Cooking Oil Merger Citing Some “Hot Docs”

by Doyle, Barlow & Mazard PLLC

On March 5, 2018, the United States Federal Trade Commission (“FTC”) filed an administrative complaint alleging that J.M. Smucker Co.’s (“Smucker”) proposed $285 million acquisition of Conagra Brands, Inc.’s (“Conagra”) Wesson cooking oil brand may substantially lessen competition and reduce competition for canola and vegetable oils in the United States.

Smucker currently owns the Crisco brand, and by acquiring the Wesson brand, it would control at least 70% of the market for branded canola and vegetable oils sold to grocery stores and other retailers. Smucker and Conagra both manufacture and sell a wide range of food products, including canola and vegetable oil, other types of oils, and shortening. The FTC also claims that other branded canola and vegetable oils available in the United States, such as Mazola and LouAna, each control only a small share of the market, and do not hold the same brand equity. Furthermore, building sufficient brand equity to expand would require substantial investment and take at least several years.

Under the proposed acquisition, Smucker would obtain all intellectual property rights to the Wesson brand, as well as inventory and manufacturing equipment.

March 2, 2018

Close Coordination Between FTC and EC on Essilor and Luxottica Antitrust Reviews

by Doyle, Barlow & Mazard PLLC

On March 1, 2018, Essilor International S.A. (“Essilor”) and Luxottica Group S.p.A. (“Luxottica”) announced that the proposed combination between the two companies has been cleared by both the FTC and the EC without conditions.

Critics raised concerns about the merged company’s shutting out competitors, which would leave consumers with fewer options and less freedom of choice. For example, if the merged firm bundles together frames and lenses for sale in its Lenscrafters stores, other lens manufacturers will lose sales. Independent stores might also be left out or excluded from the markets. The concern was not just in these critics’ imagination as Luxottica has a history of shutting out its rivals. Year ago, Luxottica and Oakley had a disagreement about pricing, and Luxottica stopped Oakley’s products in their stores. Oakley’s stock price collapsed, and it was later bought by Luxottica. Critics also claimed the merger eliminated competition between the two companies and ends the possibility of future competition. Essilor had started promoting its own sunglasses and online sales, and Luxottica was beginning its own lens manufacturing. The two firms were expanding into each other’s markets and competing against each others, which would have driven down prices, improved quality, and helped consumers. Given the decisions by the FTC and EC, that competition will never occur.

According to the FTC in its statement to close its investigation of the merger, the evidence did not support a conclusion that Essilor’s proposed acquisition of Luxottica violates federal antitrust laws: “FTC staff extensively investigated every plausible theory and used aggressive assumptions to assess the likelihood of competitive harm. The investigation exhaustively examined information provided by a wide and deep swath of market participants, as well as the parties’ own documents and data. Assessing the likely competitive effects of a proposed transaction is a fact-specific exercise that takes into account the current market dynamics, which may be different in the future. Here, however, the evidence did not support a conclusion that Essilor’s proposed acquisition of Luxottica may be substantially to lessen competition in violation of Section 7 of the Clayton Act.” The FTC vote to close the investigation and issue the closing statement was 2-0.

February 22, 2018

Is the Selective Enforcement Defense Applicable To Antitrust Cases?

by Doyle, Barlow & Mazard PLLC

On February 21, 2018, Judge Leon ruled against AT&T Inc.’s (“AT&T”) ability to discover evidence that would support its selective enforcement defense.

Background

On November 21, 2017, the U.S. Department of Justice’s (“DOJ”) Antitrust Division filed a complaint in federal court block AT&T’s acquisition of Time Warner Inc. (“Time Warner”).

February 10, 2018

FTC Says No More Divestitures of Complex Pipeline Products to Resolve Future Competition Concerns in Pharmaceutical Mergers

by Doyle, Barlow & Mazard PLLC

On February 2, 2018, Bruce Hoffman, the Federal Trade Commission’s (“FTC”) acting Director of the Bureau of Competition, announced at the Global Competition Review Seventh Annual Antitrust Law Leaders Forum that the FTC will no longer accept divestitures of inhalant and injectable pipeline drugs in pharmaceutical mergers. Historically, the FTC had accepted divestiture of pipeline asset to remedy potential competition concerns. Hoffman said that the FTC is making changes to how it resolves anticompetitive pharmaceutical mergers because past divestitures of assets in the research and development pipeline had a high failure rate for inhalants and injectables, which are known to be difficult and complex to manufacture.

The past history of problems with divestitures in this area indicated to the FTC that divesting ongoing manufacturing assets rather than pipeline assets that have not come to market places greater risk of failure on the merging firms rather than consumers. Accordingly, in situations in which the parties to the transaction own both an established inhalant or injectable that is currently being manufactured and an overlapping pipeline inhalant or injectable, the FTC will seek a divestiture of the manufactured product that is already on the market. The FTC, for example, may require the divestiture of contract manufacturing capabilities rather than other assets, such as research and development assets.

The FTC is taking the stance because of an internal study that revealed that the rate of failure for divestitures of complex pipeline products was “startlingly high”. Apparently, divestiture buyers have had difficulty in actually getting the complex pipeline assets to market. Not surprisingly, a divestiture buyer could struggle to reliably manufacture a complex pharmaceutical product, which harms its ability to ultimately bring the product to market. Indeed, all kinds of things can go wrong when trying to launch a complex pharmaceutical product. For instance, the divestiture buyer of pipeline assets could have difficulty obtaining final FDA approvals including the OK to actually manufacture the product.