Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with antitrust

On December 14, 2017, the Federal Communications Commission (FCC) voted 3-2 to adopt the Restoring Internet Freedom Order and in doing so, scrapped its net neutrality rules that were put in place in 2015.

Net Neutrality is a principle that allows for an open and free internet.  The Internet Service Providers (ISPs”) are the gatekeepers to all content on the internet.  Net Neutrality rules prohibited ISPs from unfairly discriminating against others by speeding up, slowing down, throttling, or blocking the delivery of internet traffic.  Net Neutrality is what gives users the freedom as they browse through web pages, apps or any other content available on the internet.

By scrapping the FCC’s Net Neutrality rules, ISPs will be free to act without burdensome regulations, which imposed substantial costs, chilled investment, and lessened innovation. ISPs, however, will be required to disclose information about their practice to consumers, entreprenuers, and the Commission, including any blocking, throttling, paid prioritization, or affiliated prioritization.  While the FCC is returning to a light touch approach, its action restores the FTC’s jurisdiction to act when ISPs or broadband providers get out of line through unfair, deceptive, or anticompetitive acts.

On December 6, 2017, Senator Elizabeth Warren sharply criticized the state of antitrust enforcement in a speech at the Open Markets Institute.

She said that antitrust enforcers adopted the Chicago School principles, which narrowed the scope of the antitrust laws and allowed mega-mergers to proceed resulting in many concentrated industries.  She believes that antitrust enforcers already have the tools to reduce concentrated markets and that they simply must start enforcing the law again.

Senator Warren’s recommendations included stronger merger enforcement, cracking down on anticompetitive conduct and increasing agency involvement in defending competition.

On December 5, 2017, the Federal Trade Commission (“FTC”) issued an administrative complaint challenging Tronox Limited’s proposed acquisition of Cristal, a merger of two of the top three suppliers of chloride process titanium dioxide (“TiO2”) in the North American market.

Background

On February 21, 2017, Tronox inked a deal to buy Cristal for $1.67 billion and a 24% stake in the new entity. The transaction would have created the largest TiO2 company in the world, based on titanium chemical sales and nameplate capacity.

On November 22, 2017, the FTC announced that retail fuel station and convenience store operator Alimentation Couche-Tard Inc. (“ACT”) agreed to divest three fuel stations in Alabama to settle FTC charges that ACT’s proposed acquisition of Jet-Pep, Inc. (“Jet-Pep”) would violate federal antitrust law.

Under the terms of the deal, ACT will acquire ownership or operation of 120 Jet-Pep fuel outlets with convenience stores – 18 via Circle K, a wholly-owned subsidiary of ACT, and 102 via CrossAmerica Partners LP, over which Circle K has operational control and management.

According to the complaint, the acquisition would increase both the likelihood of successful coordination among the remaining firms and the likelihood that ACT will unilaterally exercise market power in three local retail fuel markets.  The complaint alleges that without a remedy, the acquisition of Jet-Pep by ACT would reduce the number of independent market participants from three or fewer in Brewton, Monroeville, and Valley, Alabama.

On November 16, 2017, Makan Delrahim, recently confirmed as Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice (“DOJ”), delivered a speech on the relationship between antitrust as law enforcement and his goal of reducing regulation.

Delrahim explained that effective antitrust enforcement lessens the need for market regulations and that behavioral commitments imposing restrictions on the conduct of the merged firm represents a form of government regulation and oversight on what should preferably be a free market.

Criticizing the early Obama administration for entering into several behavioral consent decrees that allowed illegal vertical mergers such as Comcast/NBCU, Google/ITA, and LiveNation/TicketMaster to proceed, Delrahim said there is bipartisan agreement that behavioral conditions have been inadequate. He shares the same skepticism that John Kwoka, a law professor and economist who previously served in various capacities at the Federal Trade Commission, Antitrust Division, and Federal Communications Commission, and American Antitrust Institute (AAI) President Diana Moss have about using regulatory solutions to address antitrust violations.  Specifically, Delrahim agrees with them that “allowing the merger and then requiring the merged firm to ignore the incentives inherent in its integrated structure is both paradoxical and likely difficult to achieve.”

On November 3, 2017, the FTC announced that Red Ventures and Bankrate agreed to a divestiture of Bankrate’s Caring.com business unit to settle FTC charges that their $1.4 billion merger would likely harm competition in the market for third-party paid referral service for senior living facilities.

According to the FTC’s complaint, Red Ventures was not itself present in that market.  Nevertheless, the FTC was concerned that two of Red Ventures’ largest private equity shareholders: Silverlake Partners and General Atlantic jointly own A Place for Mom.com, which allegedly competes with Bankrate’s Caring.com, which competes in the market for third-party paid senior living facilities referral services.  A Place for Mom.com, the largest provider of such services, and Caring.com is the second largest provider.  In addition to their 34% equity interest in Red Ventures, General Atlantic and Silver Lake Partners have two of the seven seats on Red Ventures’ board, approval rights over two other seats and approval rights over significant capital expenditures.

According to the complaint, a Place for Mom.com and Caring.com are each other’s closest competitors, competing for national and local business.  Other competitors in the U.S. market for third-party paid referral services for senior living facilities comprise a much smaller fringe.  The complaint alleges that the two Red Venture shareholders have the collective ability to significantly influence management of Red Venture and Caring.com.  Thus, if consummated, the transaction may increase the chance for Red Ventures to unilaterally exercise market power and the potential for coordinated interaction between Caring.com and A Place for Mom.

On September 27, 2017, the DOJ announced Showa Denko K.K. (“SDK”) will be required to divest SGL Carbon SE’s (“SGL”) entire U.S. graphite electrodes business in order for SDK to proceed with its proposed $264.5 million acquisition of SGL’s global graphite electrodes business.

According to the DOJ’s complaint, SDK and SGL manufacture and sell large ultra-high power (UHP) graphite electrodes that are used to generate sufficient heat to melt scrap metal in electric arc furnaces.  The complaint alleges that SDK and SGL are two of the three leading suppliers of large UHP graphite electrodes to U.S. electric arc furnace steel mills, and that the two firms together have a combined market share of about 56%.  The third domestic player has a 22% market share.  While the rest of the market share (22%) is held by a number of importers, the DOJ alleged that none of the importers could individually or collectively are in a position to constrain a unilateral exercise of market power.

In the United States, individual EAF customers solicit bids from three domestic producers of large UHP graphite electrodes, and these producers develop individualized bids based on each customer’s Request

The answer is No.  The fact that your deal avoided a second request investigation does not mean that you are in the clear if your deal substantially lessens competition in a relevant antitrust market.

The Department of Justice’s Antitrust Division (“DOJ”) and Federal Trade Commission (“FTC”) have for years emphasized that they will investigate and challenge consummated transactions that were not initially reviewed or slipped through the cracks if those transactions substantially lessen competition.  It does not matter that for one reason or another that merging parties were able to successfully avoid a long drawn out investigation.  The DOJ’s lawsuit to block Parker’Hannifin’s acquisition of CLARCOR, Inc. illustrates that the DOJ may open an investigation and challenge a transaction even after it allowed the Hart-Scott Rodino (“HSR”) waiting period to expire.  The enforcement action also serves as a reminder that if merging parties do not cooperate with a merger investigation, they risk being sued.

DOJ Sues Parker-Hannifin Seven Months After Allowing it to Close its Acquisition of CLARCOR

On September 19, 2017, Valero Corporation (“Valero”) abandoned its acquisition of two northern California bulk petroleum terminals from Plains All American Pipeline (“Plains”) after the California state attorney general filed a lawsuit in the Northern District of California against Valero’s proposed acquisition.  The lawsuit was filed on July 8, 2017, a day after the FTC decided not to take any action against the transaction.

Background of Case 

Valero is a refiner and retailer of gas in California and through the acquisition, it was seeking to add Plain’s storage and distribution terminals in Richmond and Martinez, California.  California alleged that the transaction would allow Valero to control the last independently operated gathering line in the state with available capacity.  Part of the state’s argument was that the acquisition would eliminate Plains as a maverick competitor.  California alleged that Valero’s acquisition would permit the vertically integrated refiner to reduce competitor access to the distribution terminals, which would result in increased fuel prices at retail gas stations.  California alleged that Valero would be able to recoup lost terminal profits (after withholding access from competitors) through a downstream increase in gas prices.  California also alleged that once all the fuel terminals were vertically integrated, there would be a higher risk of coordination among Valero and other vertically integrated providers to similarly reduce supply into the terminal and increase prices at gas stations.

On August 30, 2017, the Federal Trade Commission (“FTC”) announced that Mars, Incorporated (“Mars”)  agreed to divest 12 specialty or off-hours emergency animal hospitals around the United States to settle FTC allegations that Mars’s $9.1 billion acquisition of pet care company VCA Inc. (“VCA”) would violate federal antitrust laws.

Competition Problem

The animal hospital industry is highly fragmented and very crowded.  For the most part, the FTC found that there were really very few antitrust concerns with the deal so there was much in terms loss of competition.  Overall, the combined entity would own roughly 6.5% of the North American market (26,000 animal hospitals) in terms of locations.  While a 6% share of the national or North American space is by no means troubling, problematic overlaps could nevertheless exist in smaller local markets.  Indeed, the primary factors influencing a customer’s selection of an animal hospital are convenient location and hours, personal recommendations, reasonable fees and quality of care.