Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with merger

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 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 23, 2017, the Federal Trade Commission cleared Amazon.com Inc.’s acquisition of Whole Foods Market Inc. without a second request investigation. As mega mergers go, this antitrust review was fast and furious.

When the deal was announced, consumer groups and politicians questioned whether the combination was anticompetitive. Even President Trump, during the campaign, had been quoted as saying “Amazon had a huge antitrust problem”.

Many others were outspoken that the deal should at the very least undergo a thorough investigation because as they saw it, Amazon was adding groceries to its mix in an effort to cement its position as the go to platform where most online commerce takes place. The argument goes that Amazon is a monopolist in online retailing (46% of online retail sales) and it was acquiring Whole Foods, an organic and premium food grocery brick & mortar retailer providing Amazon with additional infrastructure that would allow Amazon to sell and deliver groceries in more cities. Indeed, AmazonFresh is available only in a handful of cities, and doesn’t have the same range of offerings as Whole Foods. Whole Foods delivers through Instacart, but not in a number of of cities. Amazon Prime offers free delivery and Instacart’s delivery fees can add up. Therefore, the deal raised both vertical (online platform along with brick & mortar stores) and horizontal (both firms competed in the retail distribution of food) issues, but combined the merged firm was still a very small retail grocer and the addition of Whole Foods tiny share of the grocery business was trivial.

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.

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 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.