© 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.
-
Upload
liam-goldstone -
Category
Documents
-
view
219 -
download
3
Transcript of © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.
![Page 1: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/1.jpg)
© 2005 Dechert LLP
Antitrust M&A Developments
2004 – The Year in Review
March 11, 2005
![Page 2: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/2.jpg)
2
Antitrust M&A Highlights
• The government doesn’t always win
• Watch the deals that are not challenged
• Relevant market allegations continue to be very narrow
• Unilateral effects cases require closest substitutes, not just close substitutes
• Customer testimony has its limits
• Flexibility with remedies may increase, but parties must honor their commitments
![Page 3: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/3.jpg)
3
Antitrust M&A Highlights
• Ninth Circuit flashes warning light for joint ventures
• Fines for Hart-Scott-Rodino violations are rising but so are reporting thresholds
• Policymaking continues into the second term; more changes ahead
• Senior personnel have changed and others may soon change. Will enforcement change?
![Page 4: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/4.jpg)
4
The Government Doesn’t Always Win
• In three significant decisions, the government lost merger challenges:
– United States, et al. v. Oracle Corporation, 331 F. Supp. 2d 1098 (N.D. Cal. 2004) (rejecting DOJ’s market definition, competitive effects analysis and reliance on customer testimony)
– FTC v. Arch Coal, Inc., 2004 U.S. Dist. Lexis 15996 (D.D.C. Aug. 16, 2004) (rejecting FTC’s “novel” theory of “tacit coordination” to restrict output)
– United States, et al. v. Dairy Farmers of America and Southern Belle Dairy, Civ. No. 03-206 (E.D. KY Aug. 31, 2004) (ownership of 50% non-voting interest alone is insufficient to conclude that a reduction in competition is likely) (appeal pending)
![Page 5: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/5.jpg)
5
But Overall, the Government Wins More Than They Lose
• To start 2005, the government did win one, albeit in an administrative action with the Federal Trade Commission sitting in review of its own case
– In the matter of Chicago Bridge & Iron Company
• In the aggregate, the federal agencies are batting better than .500 in federal litigated merger cases since 2000 (5 years)
– DOJ prevailed in two of four litigated merger cases
– FTC prevailed in three of four litigated merger cases
![Page 6: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/6.jpg)
6
Watch the Deals that are Not Challenged
• DOJ announced a new policy of attempting to explain the decision not to challenge certain deals
• The DOJ policy tracks the FTC practice begun in 2001 with the AmeriSource/Bergen transaction
• These statements provide valuable insight into the Agencies’ thought processes
![Page 7: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/7.jpg)
7
Agency Explanations of Decisions Notto Challenge Transactions in 2004
DOJ Explanations
Anthem/Wellpoint Health
Movielink (VOD JV)
UnitedHealth Group/Oxford
Arch Wireless/Metrocall
FTC Explanations
Genzyme/Novazyme
(with dissent and statement)
Caremark/Advance PCS
RJR/Brown & Williamson *
(with concurrence)
Bertelsmann/Sony JV (concurrence)
Victory Memorial/Provena
(with dissent)
*Notable for its detailed application of coordinated and unilateral effects analysis
![Page 8: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/8.jpg)
8
Relevant Market Allegations Continue To Be Very Narrow
Arch Coal – 8800 Btu SPRB coal, excluding 8400 Btu SPRB coal, is a relevant market
Southern Belle – school milk in each school district is a relevant market
Evanston Hospital Northwestern Healthcare – northeast Cook County and southeast Lake County comprise a geographic market for hospital merger analysis
Connor Bros. – Sardine snacks, as distinguished from premium sardines and ethnic sardines, constitute a relevant product market
![Page 9: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/9.jpg)
9
Unilateral Effects Cases Require Closest, Not Just Close Substitutes
• Chicago Bridge – “This case involves the acquisition of a company by its closest rival in four relevant markets;” emphasis on closest competitor repeated throughout the opinion.
• Oracle - “Plaintiff [in unilateral effects case] must demonstrate that merging parties would enjoy a post-merger monopoly or dominant position, at least in a ‘localized competition’ space;” must be a gap to competing products in the chain of substitution.
![Page 10: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/10.jpg)
10
Unilateral Effects Cases Require Closest, Not Just Close Substitutes
• RJR/B&W - Unilateral effects requires “uniquely close competitors.” “There is no market in which, and no brands for which, [B&W] and RJR are each other’s closest competitors.”
• Cingular/AT&T Wireless – parties “are likely closer substitutes for each other than the other. . . providers in the relevant geographic markets.”
• Connor Bros. – acquired company described as “main competitor” to acquiring company; other competitors describes as “fringe” players.
![Page 11: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/11.jpg)
11
Customer Testimony Has Its Limits
• Oracle – rejecting opinion testimony of customers relating to product market definition and competitive effects as “largely their preferences;” finds that “unsubstantiated customer apprehensions do not substitute for hard evidence” regarding the costs of alternatives
• Arch Coal – rejecting testimony regarding customer preferences in favor of testimony regarding the ability of customers to substitute and historical patterns of substitution
![Page 12: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/12.jpg)
12
Flexibility With Remedies May Increase, But Parties Must Honor Their Commitments
• Most merger enforcement is still by consent decree
• Government expects you to follow through on your commitment; failure may result in fines including reimbursement to the government of the cost of investigating the violation
– Republic Services $1.5 million fine
![Page 13: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/13.jpg)
13
Flexibility With Remedies May Increase, But Parties Must Honor Their Commitments.
• Agencies will consider modification of relief where necessary
– Alcan/Pechiney (DOJ)
– Time Warner/Liberty (FTC)
• But range of relief acceptable to the agencies is constrained by FTC and DOJ policy statements
![Page 14: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/14.jpg)
14
Ninth Circuit Flashes Warning Light For Joint Ventures
• Pricing by joint venture may be deemed per se unlawful price fixing by venture’s parents when parents “fail to demonstrate a sufficient relationship between the price fixing scheme and furthering the legitimate aims of the venture.”
– Appearance of holding out the parents as independent entities post formation appears to have been a factor
• Dagher v. Saudi Refining Inc., 369 F. 3d 1100 (9th Cir. 2004) (motion for rehearing pending)
![Page 15: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/15.jpg)
15
Fines for Hart-Scott-Rodino Violations are Rising But So are Reporting Thresholds
• Misuse of the investment exemption remains the focus of enforcement actions
– Smithfield Foods - $2 million civil penalty for twice violating HSR in connection with purchases of IBP stock
– John Hancock - $1 million civil penalty for violating HSR in connection with purchases of Manulife
– Bill Gates - $800,000 civil penalty for violating HSR in connection with purchases of ICOS, a company for which he was a director
• Good news for filing parties is that statutory thresholds are now indexed to inflation and have been raised 6.2% for 2005
![Page 16: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/16.jpg)
16
Policymaking Continues; More Changes Ahead
• DOJ released new policy of explaining, in certain cases, its decision not to challenge a merger
• DOJ released the Antitrust Division Policy Guide to Merger Remedies, which was largely consistent with the 2003 Statement of the FTC’s Bureau of Competition on Negotiating Merger Remedies
![Page 17: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/17.jpg)
17
Policymaking Continues; More Changes Ahead
• FTC announced new rules that harmonize (but not equalize) the treatment of corporate and non-corporate entities under Hart-Scott-Rodino
• The Antitrust Modernization Commission announced 25 issues for study, including eight related to mergers
• The EC issued new Horizontal Merger Guidelines indicating greater convergence with U.S. guidelines
![Page 18: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/18.jpg)
18
Policymaking Continues; More Changes Ahead
• DOJ and FTC announced intention to create a commentary on the Horizontal Merger Guidelines
• FTC modified its model second request to create a special version for retail industry mergers; suggesting that additional industry-specific models would be forthcoming but none yet
![Page 19: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/19.jpg)
19
New Personnel, New Direction? DOJ Antitrust Division
• Tom Barnett, formerly of Covington & Burling, replaces Deborah Majoras as Deputy Assistant Attorney General
• David Higbee is added as Chief of Staff and Deputy Assistant Attorney General
• Ken Heyer is named on an acting basis to replace David Sibley as Deputy Assistant Attorney General for Economics
• Hew Pate has now held the AAG job for over 2 years; how long will he stay?
![Page 20: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/20.jpg)
20
New Personnel, New Direction? National Association of Attorneys General
• Mark Bennett (R-HI) takes over as Chair of NAAG’s Antitrust Committee
• Elliott Spitzer (D-NY) becomes Vice Chair
• Trish Connor from the Florida Attorney General’s Office remains chair of NAAG’s Multistate Task Force
![Page 21: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/21.jpg)
21
New Personnel, New Direction?Federal Trade Commission
• Tim Muris has stepped down as FTC Chairman and has been replaced by Deborah Majoras
– Muris was a large force on the Commission and on Commission action; explanations of decisions to not challenge mergers clearly bear his mark
– Majoras has promised continuity and appears ideologically compatible with Muris
• Jon Leibowitz replaces Mozelle Thompson
• Commission remains majority controlled by Republican appointees
![Page 22: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/22.jpg)
22
New Personnel, New Direction?Federal Trade Commission
• But Chicago Bridge strikes a very different tone
– 104 page opinion by Commissioner Swindle, long regarded as a conservative
– Heavy emphasis on the structural presumption; strength of the presumption regarded as a function of concentration
– Minimal discussion of competitive effects and market circumstances that give rise to adverse competitive effects; closer to a 1984 Merger Guidelines analysis
![Page 23: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/23.jpg)
23
New Personnel, New Direction?Federal Trade Commission
• Is Chicago Bridge a new direction or simply a very careful effort to avoid creating precedent that could be used against the Commission in future deals?
– We will be watching this closely and will let you know!
![Page 24: © 2005 Dechert LLP Antitrust M&A Developments 2004 – The Year in Review March 11, 2005.](https://reader035.fdocuments.in/reader035/viewer/2022062515/56649c7f5503460f94935a23/html5/thumbnails/24.jpg)
24
For more information, please contact:
Paul T. Denis
Dechert LLP
Washington, DC
(202) 261-3430
Michael D. Farber
Dechert LLP
Washington, DC
(202) 261-3438
www.dechert.com282110