Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with merger

The federal antitrust agencies continue their emphasis on investigating, challenging, and unwinding consummated transactions that are not reportable under the Hart Scott Rodino (“HSR”) Act.

Most recently, on November 6, 2019, the Federal Trade Commission (“FTC”) issued an Opinion and Final Order in which the Commission upheld the Administrative Law Judge’s (“ALJ”) decision that Otto Bock HealthCare North America, Inc.’s (“Otto Bock”) acquisition of FIH Group Holdings, LLC (“Freedom”) was anticompetitive and that Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.  The Commission’s order was approved by all five commissioners and continues the trend of unwinding  consummated acquisitions that are deemed to be anticompetitive.

Indeed, corporate executives that enter into non-reportable acquisitions of their competitors must be aware that in some cases these deals entail significant antitrust risk.  Just because the deal is not reportable under the HSR Act does not mean that the federal or state antitrust agencies won’t investigate, challenge, and unwind it.  The FTC and DOJ have either completely unwound or forced partial divestitures in a number of small non-reportable deals including Magnesium Elektron/Revere Graphics, a $15 million deal; George’s/Tysons, a $3 million deal; Dun & Bradstreet’s $29 million deal; Charlotte Pipe/Star Pipe, a #19 million deal; Renown Health’s $3 and $4 million deals, BazaarVoice/Power Reviews; and the list goes on. In addition to forcing divestitures, the DOJ and the New York State Attorney General actually obtained disgorgement of profits in one non-reportable transaction.  So, buyers must be aware of the risks of closing a non-reportable transaction that eliminates competition.

On September 12, 2019, a coalition of unions, consumer groups, and public interest organizations filed a letter with the U.S. Federal Trade Commission (“FTC”) opposing AbbVie Inc.’s (“AbbVie”) acquisition of Allergan plc (“Allergan”).

Coalition Opposing the Merger

The coalition includes Families USA, Public Citizen, U.S. PIRG Education Fund, Service Employees International Union, American Federation of State, County, and Municipal Employees, UNITE HERE, Consumer Action, American Federation of Teachers, Alliance for Retired Americans, American Family Voices, Doctors for America, End AIDS Now, Prescription Justice, Social Security Works, the Other 98, Treatment Action Group, and NextGen California.  It is asking the FTC to conduct a thorough investigation and to block the merger if the facts support it and a remedy cannot be devised to restore competition.  The coalition highlights the competitive problems arising from continued consolidation in the pharmaceutical industry and requests that the FTC include in its investigation ongoing anticompetitive conduct by the parties, such as the use of rebate walls, which will have an even more profound anticompetitive effect if this merger is consolidated, as well as past abuse of the patent system.

On September 4, 2019, the DOJ filed an antitrust lawsuit in the Northern District of Ohio to block Novelis Inc.’s proposed acquisition of Aleris Corporation.

Complaint

The DOJ alleges that the acquisition would substantially lessen competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.  The complaint explains that steel companies are developing lighter, high strength steel varieties for the auto industry. But as Novelis has observed, high strength steel “is largely replacing existing mild steel” and “cannibalizing the existing material” (i.e., traditional steel). The threat of substitution from aluminum to high strength steel is, as Aleris confirms, “limited.”  The price of aluminum auto body sheet is three or four times more expensive than traditional steel.  The complaint further alleges that the transaction would combine two of only four North American producers of aluminum auto body sheet.  The other two suppliers’ capacity is mostly committed to automakers.  Thus, other automakers rely on Novelis and Aleris to produce aluminum body sheet for automobiles to make cars lighter, more fuel-efficient, safer and more durable.

On August 20, 2019, the DOJ filed a civil antitrust lawsuit in the U.S. District Court for the District of Delaware seeking to block Sabre Corporation’s (“Sabre”) $360 million acquisition of Farelogix, Inc. (“Farelogix”).

Complaint

The DOJ alleges that Sabre and Farelogix compete head-to-head to provide booking services to airlines.  Booking services are IT solutions that allow airlines to sell tickets and ancillary products through traditional brick-and-mortar and online travel agencies to the traveling public.  The DOJ alleges that the acquisition would eliminate competition that has substantially benefited airlines and consumers in both the traditional and online markets.  The complaint further alleges that the transaction would allow Sabre, the largest booking services provider in the United States, to eliminate a disruptive competitor that has introduced new technology to the travel industry and is poised to grow significantly.

On August 2, 2019, the FTC authorized an enforcement action to challenge Evonik Industries AG’s (“Evonik”) proposed $625 million acquisition of PeroxyChem Holding Company (“PeroxyChem”).

Complaint

The FTC is alleging the merger of the chemical companies would substantially reduce competition in the Pacific Northwest and the Southern and Central United States for the production and sale of hydrogen peroxide, a commodity chemical used for oxidation, disinfection, and bleaching.

On August 7, 2018, the FTC’s Bureau of Competition announced a new new Model Timing Agreement for its merger reviews.  This is part of its initiatives to streamline its merger review process.

New FTC Model Timing Agreement

Merger investigations typically involve timing agreements, which provide an agreed-upon framework for the timing of certain steps in the investigation. Timing agreements provide the FTC staff with notice of when the parties plan to close the deal. Both parties and staff benefit from having such a framework established shortly after issuance of the Second Request as it allows staff and the parties to engage in substantive discussions with more certainty about the timing.

More Fallout From The Ill-Advised Tuna Merger

On May 16, 2018, the Department of Justice (“DOJ”) announced that a federal grand jury returned an indictment against Christopher Lischewski, the President and CEO of Bumble Bee Foods LLC (“Bumble Bee”), for participating in a conspiracy to fix prices for packaged seafood sold in the United States.

The indictment, filed in the U.S. District Court for the Northern District of California in San Francisco, charges Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.  The one-count felony indictment charges that Lischewski carried out the conspiracy by agreeing to fix the prices of packaged seafood during meetings and other communications.  The co-conspirators issued price announcements and pricing guidance in accordance with these agreements.

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%.

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.

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.