Antitrust Lawyer Blog

Commentary on Current Developments

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 February 3, 2017, Maureen Ohlhausen, Acting Chair of the Federal Trade Commission (“FTC”) gave a speech entitled “The FTC’s Path Ahead”. She said her antitrust philosophy is that she believes “in the power of the markets-when free of restraints and unnecessary regulations-to provide the best outcomes for consumers.” She believes in the “rigorous application of economic theory” for informing enforcement decisions.  She vows to challenge anticompetitive mergers.  She spoke about having an evidence based approach to antitrust enforcement and that the FTC should avoid against uncritically accepting a single piece of empirical work such as John Kowka’s claim that divestitures fail to protect competition.  He applauded him for his time but then criticized his work.  She said the Remedy Study demonstrates that the FTC’s remedies have worked well in most cases but acknowledged some imperfections exist.  She noted that every divestiture of an ongoing business succeeded and that 80% of all remedies succeeded.

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 January 13, 2017, United States Federal Trade Commission (“FTC”) Chairwoman Edith Ramirez announced her resignation from the FTC, effective February 10, 2017.  This would leave the agency with two commissioners.  One Republican and one Democrat, Terrell McSweeny.  It is expected that the new interim FTC Commissioner will be Republican Maureen Ohlhausen.

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 26, 2016, the Federal Trade Commission (“FTC”) approved final amendments to the Hart-Scott-Rodino Premerger Notification Rules that allow HSR filings to be submitted on DVD and streamline the instructions to the Premerger Notification Form.  These updates will make the process of submitting HSR filings easier, more efficient and less burdensome.

The HSR Act gives the federal government the opportunity to investigate and challenge mergers that are likely to harm consumers before injury occurs.  The HSR Act requires that the parties to certain proposed transactions submit HSR filings to the FTC and Department of Justice. These filings comprise of an HSR Form, which contains information about each company’s business, and relevant business documents regarding competition.

Currently, all HSR filings are submitted in paper form. By allowing HSR filings to be submitted on DVD, the amendments eliminate the expensive and time-consuming printing and duplication of electronically maintained documents that are submitted to the antitrust agencies.

On August 25, 2016, the FTC announced that ON Semiconductor Corporation (“ON”) agreed to sell its Ignition Insulated-Gate Bipolar Transistor (“IGBT”) business in order to settle FTC allegations that its proposed $2.4 billion acquisition of Fairchild Semiconductor International, Inc. (“Fairchild”) is anticompetitive.

According to the complaint, the merged company would have a combined share of over 60% in the worldwide market for IGBTs specifically designed and calibrated for automotive ignition systems, or Ignition IGBTs.  Without a divestiture, it is likely that the proposed merger would substantially lessen competition in the worldwide market for Ignition IGBTs, resulting in higher prices and reduced innovation.  Ignition IGBTs are semiconductors that function as solid-state electronic switches in the ignition systems of automotive internal combustion engines.  They have to meet the demanding performance requirements and harsh environment of an automotive ignition system.

ON and Fairchild both develop, manufacture, and market a wide range of semiconductors.  They are each other’s closest competitors for Ignition IGBTs sold to automotive suppliers, who then incorporate Ignition IGBTs into the ignition systems that they sell to automakers.  The proposed consent order preserves competition by requiring ON to divest its Ignition IGBT business to Littelfuse, Inc. (“Littelfuse”) within ten days of the close of the transaction.  Littelfuse is buying the product portfolio of transient voltage suppression diodes, switching thyristors, and insulated gate bipolar transistors for automotive ignition applications for $104 million.  The divestiture will include design files and intellectual property that Littelfuse needs to manufacture ON’s Ignition IGBTs.  ON must also facilitate the transfer of its customer relationships to Littelfuse, and supply Ignition IGBTs for Littlefuse to sell to customers while Littelfuse sets up its manufacturing operations.  Littelfuse will  spend about $30 million at its semiconductor manufacturing facilities to upgrade production capabilities and add significant capacity to its China fabrication facility as the result of the purchase and production transfer.

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.