Antitrust M&A Snapshot | Q3 2022

The ALJ rejected the FTC’s vertical merger challenge. The ALJ found that complaint counsel (i.e., the FTC staff) had not shown that the transaction would create an incentive for Illumina to withhold its genomic sequencing product from GRAIL’s cancer detection test rivals. While the ALJ found that gene sequencing was critical to test development and Illumina was the only viable supplier, he also found that GRAIL had no meaningful rivals because other tests would not be good substitutes for GRAIL’s and would not take meaningful sales from GRAIL. The ALJ also found that an “open offer” by Illumina to supply its gene sequencing product to all oncology test developers, with defined terms and prices, prevented Illumina from withholding its product or raising its prices. Complaint counsel has appealed the decision to the FTC commissioners.

DOJ alleged both horizontal and vertical theories. On the horizontal theory, DOJ alleged that the combination of UnitedHealth and Change Healthcare would create an entity with a market share of more than 80% in first-pass claims editing for medical claims that providers submit to insurers (payors). The parties, however, had agreed to divest Change Healthcare’s first-pass claims editing business (ClaimsXten, the stronger of the two claims editing businesses) to private equity firm TPG Capital. DOJ suggested TPG would be unable to replicate the competitive intensity that existed before the proposed transaction because it would not have the same broad portfolio of products as Change Healthcare, but US District Judge Carl Nichols found that the divestiture resolved the horizontal competition concerns. On the vertical theory, DOJ alleged that by acquiring Change Healthcare and its electronic data interchange clearinghouse, UnitedHealth would acquire the ability and incentive to misuse competitively sensitive information that Change Healthcare obtains from competing health insurers by passing that information to UnitedHealth’s insurance business. Judge Nichols was unpersuaded by the DOJ’s incentives theories and focused more on the real-world evidence relating to the following:

• UnitedHealth’s existing firewalls preventing its Optum Health consulting business (which would manage Change Healthcare) from passing insurer data to UnitedHealth’s insurance business
• UnitedHealth’s business incentives to protect confidential and competitively sensitive information
• UnitedHealth’s customer contracts precluding such data transfer
• Testimony from executives of the parties and other insurers rejecting DOJ’s theory.

In total, Judge Nichols held that the horizontal issue was remedied by the fix and the vertical theory was countered by the evidence at trial. DOJ did not appeal this decision.

DOJ alleged that the proposed transaction “would leave an overwhelming majority of refined sugar sales across a handful of states in the Southeast in the hands of only two producers,” which would lead to higher prices and harm businesses and consumers. US District Judge Maryellen Noreika rejected both the DOJ’s proposed product market limited to sugar producers (for failing to include distributors and failing to distinguish between different types of customers) and its proposed southeastern US geographic market (because the evidence showed that sugar flows throughout the United States). Judge Noreika also was persuaded by evidence showing that the US Department of Agriculture could adjust sugar supply to defeat an attempted price increase. The DOJ has appealed this decision to the US Court of Appeals for the Third Circuit.

The complaint alleges that Meta’s acquisition of Within and its dedicated fitness application, Supernatural, would substantially harm competition in virtual reality dedicated fitness applications in two ways. First, because Meta is a potential entrant into the market (and is the largest provider of virtual reality devices and a leading provider of virtual reality applications), an acquisition of Within would eliminate this potential entry and thereby reduce future innovation. Second, the mere possibility of Meta’s eventual entry also influenced competition in this market, and without Meta as a potential entrant, the competitive intensity in the market would be reduced.

D’Ieteren is active in the repair and replacement of vehicle glass in several EU Member States, including France. The brands under its control include Carglass, Safelite and Autoglass. Carglass has a leading position in the French market for the provision of vehicle glass repair and replacement services. It carries out three times as many vehicle glass repair jobs as the next largest competitor and has a strong brand image with consumers. The target company, PHE, is also active in the repair of vehicle glass in France through a network of workshops under the brand Mondial Pare-Brise and through the Glass Auto Service label.

The Commission considered whether the transaction would create a market leader and an unavoidable trading partner for many insurers. According to the Commission, insurers would not be able to redirect a significant portion of their business to other specialist networks if the transaction was consummated. The Commission also found that the market is characterized by high barriers to entry due to the time and expense needed to develop a nationwide network.

The Commission found that the divestment would fully remove the overlap between the merging parties regarding vehicle glass repair and replacement services activities in France.

Both merging parties are global providers of multi-technical and engineering services. Bouygues, via Colas Rail Belgium, and Equans are among a few providers of electrical engineering services for railway contact lines in Belgium and two of only three providers nationwide.

The Commission’s investigation found that the merged entity would have high market shares and would face a small number of competitors in future calls for tenders. The Commission also identified significant barriers to entry into the market. As a result of the merger, the Commission expected a price increase for electrical engineering services for railway contact lines in Belgium. With the divestiture, Colas Rail Belgium would remain an independent competitor to Bougyues and Equans in Belgium.

The merger was also subject to review by the UK Competition and Markets Authority (CMA). The transaction raised specific competition concerns in July because both firms were bidding for High Speed 2, to supply catenary systems (the overhead power cables used to supply electricity to trains) to high-speed railways in the United Kingdom.

On September 27, 2022, the CMA confirmed that the concessions offered by the merging parties were accepted. The deal will therefore not be referred for an in-depth probe. Under the commitments, the merging parties agreed to appoint an independent third-party expert to assess the bids submitted in the High Speed 2 tender by Colas Rail and the Rapide JV. Further, the merged entity agreed to withdraw one of the tenders submitted by Bouygues (through Colas Rail UK) or Equans (through its participation in Rapide JV).

The merger was referred to the Commission by several EU and European Free Trade Association Member States (France, Belgium, Greece, Iceland, the Netherlands and Norway). The transaction did not meet the turnover threshold of the EU Merger Regulation and was not notified to any Member State, but met the criteria for referral under Article 22 of the EU Merger Regulation. The Commission accepted the referral because it believed GRAIL’s competitive significance was not reflected in its turnover. The General Court of the EU upheld the Commission’s referral decision, thereby confirming the Commission’s jurisdiction. Illumina filed an appeal to the Court of Justice.

Following an in-depth investigation, the Commission concluded that the merger would stifle innovation and reduce choice in the emerging market for blood-based early cancer detection tests. According to the Commission, the merger would give Illumina the ability and incentive to foreclose GRAIL’s rivals, as both GRAIL and its competitors rely on Illumina’s NGS systems to develop and run their cancer detection tests. Furthermore, NGS-based early cancer detection testing is expected to expand rapidly and to become highly lucrative in the upcoming years.

To alleviate competitive concerns, Illumina offered an open license to NGS suppliers to some of Illumina’s NGS patents, a commitment to stop patent lawsuits in the United States and Europe against the NGS supplier BGI Genomics (China) for three years, and a commitment to conclude agreements with GRAIL’s rivals under the conditions set out in a standard contract. The Commission did not accept these proposed remedies, however, and concluded that Illumina would still have the ability and incentive to foreclose GRAIL’s competitors.

Further, when Illumina publicly announced the completion of its acquisition of GRAIL in August 2021, the Commission adopted interim measures to restore and maintain the conditions of effective competition. The Commission also opened an investigation to assess whether Illumina breached the “standstill obligation” by implementing the acquisition prior to obtaining the Commission’s merger control approval. If the Commission concludes that the merging parties breached the standstill obligation, it could impose a fine of up to 10% of each company’s annual worldwide turnover.

The CMA referred the merger for an in-depth Phase II investigation in March 2022, having concluded that the transaction raised a realistic prospect of a substantial lessening of competition. However, the in-depth investigation showed that the supply of cyber safety software to consumers is rapidly evolving. Providers of paid-for and free services are continually developing and improving products to meet different and changing customer needs. According to the CMA, the merged entity would face significant competition from McAfee, their main rival, plus a range of other suppliers that currently have a smaller market position in the United Kingdom. The CMA also found that Microsoft (which holds a unique position in the market as the owner of the Windows operating system and has improved its built-in, bundled security application) offers an increasingly important alternative for consumers.

Following a Phase II merger investigation, the CMA determined that the acquisition will substantially lessen competition in the supply of property search services in England and Wales. The parties provide property search reports, which are used to ensure that buyers and sellers have all the facts they need about a property (including title, access rights, planning restrictions, water and sewerage services, flood risk and other important information) before a sale goes ahead. The in-depth investigation found that Dye & Durham and TM Group were close rivals before the merger and would be the largest provider in the market if combined. The CMA also found that the merger would leave only two other large national suppliers in the market, and that competition from smaller suppliers would not offset the competition lost by the merger.

To address this loss of competition, the CMA concluded that Dye & Durham must sell TM Group to a suitable buyer and has asked interested parties to submit comments on the proposed divestment.