IN THIS JULY 2024 ISSUE
UNITED STATES
- Agencies Revisiting Consummated Mergers
What’s old is new again, as agencies are increasingly scrutinizing consummated mergers from years past. In May 2024, the US Department of Justice (DOJ), Antitrust Division, together with 30 states and the District of Columbia, sued Live Nation, alleging monopolization and other claims. If successful, the lawsuit could result in Live Nation being forced to sell Ticketmaster despite regulators clearing the combination in 2010. This is not the first time regulators have revisited Live Nation’s purchase of Ticketmaster. The 2010 deal involved a consent decree with the DOJ requiring Live Nation to sell off certain assets and license software to competitors as well as prohibiting, for 10 years, retaliation against venues for considering working with ticketing services other than Ticketmaster. In 2019, the DOJ found that Live Nation violated the agreement; the DOJ subsequently extended the consent decree and imposed additional costs and fees on Live Nation. At the time, the DOJ advertised the extension as “the most significant enforcement action of an existing antitrust decree by the Department in 20 years.”
This lawsuit aligns with recent agency rhetoric and the recent enforcement trend of re-opening investigations into closed deals. The DOJ’s 2023 lawsuit alleging Google monopolized digital advertising technologies – including through “serial acquisitions” – is set for trial this fall. Additionally, in June 2024 the Federal Trade Commission (FTC) asserted, in its ongoing lawsuit against Meta challenging its acquisitions of Instagram in 2012 and WhatsApp in 2014, that the company withheld documents as part of the earlier Hart-Scott-Rodino (HSR) reviews of those acquisitions. The agency represented, in June, that if it had access to the pre-acquisition documents it now has, the outcome of the initial review could have come out differently.
The agencies also have signaled, through their recent public requests for information (RFIs), that they will make other inquiries into past acquisitions. The FTC, DOJ, and US Department of Health and Human Services (HHS) issued an RFI in March 2024 asking the public to comment on deals by “health systems, private payors, private equity funds, and other alternative asset managers” in the healthcare space. The FTC and DOJ followed in May with a second RFI specifically soliciting information on serial acquisitions and roll-up strategies across all sectors. These extensive fact-gathering efforts indicate that the agencies are eager to evaluate deals with a retrospective lens. The Live Nation, Google and Meta lawsuits may therefore function as test cases for later actions.
- Less Enforcement, More Abandonment
Recent reports indicate that, over the past three years, companies have abandoned 37 deals in the face of FTC pressure. Some were abandoned prior to formal enforcement actions and others were post-complaint. These abandonments spanned industries including pharma, defense, healthcare, energy and technology. Among them, in May 2024, Atlus Group abandoned its purchase of Situs Group’s real estate valuation business.
Assistant Attorney General Jonathan Kanter has separately stated that 21 deals were abandoned following merger investigations by the DOJ, indicating an even stronger link between regulatory action generally and further expanding the count of abandonments.
Because many deals require review by multiple agencies and countries, it can be difficult to know which pressure points or combination thereof led to the abandonment of deals. Some firms, though, announce their reasoning outright. For example, Amazon and iRobot publicly stated earlier this year that “[u]ndue and disproportionate regulatory hurdles” led to the mutual termination of their deal, specifically noting that European authorities disapproved of the deal. Amazon-iRobot also faced FTC scrutiny. Regardless of the definitive reasons, these reports confirm that merger abandonment is in a historic upswing, making breakup fees more important than ever in evaluating and allocating risk.
- Oil and Gas Deals Flowing
Merger activity in oil and gas markets remains high. Although agencies are scrutinizing the deals, they have engaged in little enforcement activity this quarter. On April 29, 2024, Diamondback Energy received a second request from the FTC looking into its $26 billion acquisition of its privately held competitor Endeavor Energy Resources. Diamondback announced to stockholders that it still anticipated a fourth-quarter closing as originally planned. The combined entity would be the third-largest oil and gas producer in the Permian Basin, located primarily in Texas and partly in New Mexico, but the US gasoline market generally is highly fragmented. This second request follows four others in the oil and gas sector in recent months:
- Occidental and Crownrock reported that they received a second request in January that just received FTC clearance on July 18, 2024.
- Chesapeake Energy and Southwest Energy received a second request in April that is ongoing.
- Chevron-Hess received a second request in January that is ongoing, and Hess is party to an arbitration with Exxon related to ownership rights implicated by the deal.
- Exxon Mobil-Pioneer Natural Resources was cleared with conditions following a second request, as explained further below.
Exxon Mobil closed its $64.5 billion acquisition of oil producer Pioneer Natural Resources on May 3, 2024, following a second request. In public documents explaining the clearance, the FTC did not allege concerns about the actual merits of the transaction despite the acquisition doubling Exxon’s footprint in the Permian Basin, as described by Exxon’s press release on the acquisition. The FTC complaint stated the geographic market for analyzing crude oil was global, and therefore combined firm’s share presumably falls well below the 2023 Merger Guidelines’ presumption of unlawfulness (30% combined market share). Nevertheless, the FTC filed a complaint focused on alleged collusive conduct by Pioneer’s CEO. The settlement required the parties to enter into a consent decree, prohibiting Exxon from appointing Pioneer’s CEO to the Exxon board and limiting which other Pioneer employees Exxon could appoint to its Board. Similar to the FTC’s recent consent decree for EQT’s acquisition of Quantum Energy’s Tug Hill entity, the FTC’s action in Pioneer is another example of a FTC settlement focused on Clayton Act Section 8 interlocking directorate issues in the energy space.
EUROPEAN UNION
- The (Possible) End of the Notorious Article 22 Referral of the European Merger Control Regulation
On March 21, 2024, Advocate General Nicholas Emiliou issued his opinion in the Illumina/Grail case and concluded that Article 22 of the EU Merger Regulation (EUMR) is not the European solution for dealing with “killer acquisitions.” In particular, he stated his view that Article 22 EUMR does not permit national competition authorities (NCAs) to ask the European Commission (EC) to examine a concentration that does not have a community dimension under the EUMR and where the NCAs have no competence to review such a concentration under national law.
As a reminder, the EC reviewed and blocked Illumina’s acquisition of Grail, a US biotechnology company, that develops blood tests for early detection of cancer, despite Grail not having any European revenue. Therefore, the parties did not submit a notification to the EC or any European competition authority, as no revenue threshold was triggered.
Historically, Article 22 EUMR was introduced to address a perceived gap where EU member states did not yet have their own merger control rules. The EC interpreted this provision more broadly to allow it to review mergers not meeting the revenue thresholds in Member States (as opposed to a country not having merger control rules in the first place).
In April 2021, the EC accepted a referral request from France, joined by Belgium, Greece, Iceland, the Netherlands and Norway. This eventually led to the EC prohibiting the proposed acquisition in September 2022, and Illumina was compelled to divest Grail in October 2023. The EC recently (April 2024) approved Illumina’s plan to divest GRAIL following the restorative measures requiring Illumina to unwind its completed acquisition of GRAIL. On June 24, Illumina announced the completion of the spinoff of GRAIL.
The lower General Court (GC) previously upheld the EC’s position. The higher EU Court of Justice is now required to assess whether Article 22 of the Merger Regulation enables the EC to review a merger referred to it by national competition authorities who lack jurisdiction to review it, since the merger falls below the thresholds of the national legislation.
The purpose of the Advocate General’s opinion to propose an independent legal analysis to the Court of Justice. The judges will generally take the opinion into account in making a final ruling. Advocate General Emiliou concluded that the GC erred in its interpretation and application of Article 22 of the EUMR. In this regard, he considered the wording, origin, context and purpose of Article 22 and considered the logic of the EU merger control system to conclude that Article 22 cannot be used where the Member States have no jurisdiction to review a concentration under its national law.
The actual position of the EC continues to raise substantial uncertainty for merging parties, as this interpretation of Article 22 EUMR gives the EC the power to review pre- or post-closing almost any concentration, occurring anywhere in the world, regardless of an undertakings’ turnover and presence in the European Union or the value of the transaction. As a reminder, the Advocate General’s opinion is not binding, and thus we await to see the decision of the Court of Justice to evaluate (or not!) the risk of an Article 22 referral when drafting transactional agreements.
- The EC Often Considers Non-Price Competition Parameters When Assessing Transactions Under EU Merger Control Regulation
In April 2024, the EC issued a competition policy brief on the topic of non-price competition in EU merger control, citing case practice examples. The EC reported that it is increasingly evaluating non-price competition parameters such as innovation, quality, data protection, sustainability and supply reliability alongside traditional price effects for its merger reviews. While price effects remain significant, assessing non-price captures broader effects on consumer welfare, as endorsed by the Horizontal Merger Guidelines and permitted under the EUMR. These factors are considered on a case-by-case basis throughout the merger assessment process, including market definition, competitive assessment, potential efficiencies and remedies. Their importance varies by industry and the specific transaction but has grown due to digital and green transitions and other evolving market dynamics.
Non-price competition parameters to be considered include the following:
- Innovation: Vital for economic progress, evaluated through R&D expenditure, industry trends, IP protection and ongoing innovation requirements, especially in pharmaceuticals, agrochemicals and high-tech sectors.
- Quality and Product Differentiation: Critical in markets with differentiated products and limited price competition; quality aspects like durability, reliability, functionality and brand perception are critical in industries such as steel manufacturing and medical devices.
- Data Protection and Privacy: Crucial in digital and tech industries, where data control is a competitive advantage, with data protection and privacy seen as quality and differentiation factors.
In May 2024, the EC published another policy brief on antitrust in labor markets. Helpfully, the brief underscores that as part of a non-problematic transaction, as long as a restriction on employees is directly related, objectively necessary and proportionate, companies will be able to justify no-poach agreements in transaction documents. However, the policy brief does note that when agreeing to such a restriction, companies should consider whether a confidentiality or nondisclosure agreement would not be sufficient and limit the clause to key personnel.
- (Not So) Kind Reminder from the EC to Provide Correct Information When It Comes to the Review of a Transaction Under EUMR
The EC suspects Kingspan to have intentionally, or negligently, provided incorrect, incomplete and misleading information while the EC investigated Kingspan’s planned acquisition of Trimo in 2021 under the EUMR. The information concerns basic facts related to Kingspan’s internal organization, as well as basic facts aimed at assessing (i) the scope of the relevant product and geographic market, (ii) the existence of barriers to entry and expansion, (iii) the importance of innovation, and (iv) the closeness of competition between Kingspan and Trimo, and vis-à-vis their competitors.
Kingspan ultimately abandoned the transaction in April 2022 If the EC were to conclude that Kingspan intentionally, or negligently, provided incorrect, incomplete or misleading information, it could impose a fine for each violation of up to 1% of the company’s annual worldwide turnover.
UNITED KINGDOM
- Focus on the M&A Aspects of the Digital Markets, Competition and Consumers (DMCC) Act to Come Into Force
The DMCC Act will grant the Competition & Markets Authority (CMA) with powers to enforce the new digital markets competition regime and will apply to firms that are designated as having strategic market status (SMS). The SMS designation will be applied to firms that have substantial and entrenched market power and a position of strategic significance in at least one digital activity linked to the UK. The threshold for SMS will include having a global turnover exceeding £25 billion, or a UK turnover exceeding £1 billion.
Along with the other two pillars of the new Digital Markets Competition regime (conduct requirements and pro-competition interventions to address adverse effects on competition), this SMS designation comes with new merger reporting requirements: SMS firms will have to report to the CMA prior to closing on intended transaction, where they have a value of £25 million or more and a UK connection.
Aside from this new merger control regime, the DMCC Act also includes a new merger control review jurisdictional threshold applicable to all sectors, where the parties’ activities do not overlap – namely, to address “killer acquisitions.” The CMA will be able to review deals when one of the parties to the transaction (i) supplies or purchases 33% of goods or services in the UK/a substantial part of the UK and (ii) has UK turnover exceeding £350 million; and (iii) another party to the transaction has a UK nexus (carries on activities in the UK, including through supplying goods or services into the UK).
The DMCC Act received royal assent on May 24, 2024, but is expected to come into force in autumn 2024 (depending in part on the prioritization of any new government). The CMA opened at the same time as the royal assent, a consultation on the Digital Markets Competition regime guidance and on the specific guidance for merger reporting requirements for SMS firms.
ENFORCEMENT IN KEY INDUSTRIES
SNAPSHOT OF SELECTED ENFORCEMENT ACTIONS
NOTABLE US CASES
| PARTIES | AGENCY | CASE TYPE (CLEARED, CONSENT, CHALLENGED, ABANDONED) | MARKETS / STRUCTURE (AS AGENCY ALLEGED) | SUMMARY & OBSERVATIONS |
| Tapestry Inc. / Capri Holdings Ltd. | FTC | Challenged | Accessible luxury handbag market, described as including three “top players” in market to create presumptively unlawful post-acquisition market share of more than 30% | The FTC alleges that this merger would eliminate head-to-head competition across “accessible luxury” product markets, with particular concern over the accessible luxury handbag market in which Tapestry’s Coach and Kate Spade brands compete with Capri’s Michael Kors brand. The FTC noted that Tapestry has engaged in serial acquisitions, which under the 2023 Merger Guidelines leads to greater scrutiny of subsequent deals like this one and analysis of the cumulative effect of the pattern. The agency also cited concerns over labor competition, noting that the two companies collectively employ 33,000 workers who benefit from competition on wage, benefits and working conditions.
The FTC cites the term “accessible luxury” as one of Coach’s own creation and highlights usage of the term in internal company documents, but the parties are engaged in a legal dispute over market definition. The complaint was filed on April 23, 2024, in the US District Court for the Southern District of New York. The litigation is ongoing. |
| Novant Health / Community Health Systems | FTC | Challenged; preliminary injunction; abandoned | Combined share of 65% of inpatient services in Eastern Lake Norman Area of North Carolina | Novant Health announced on June 19, 2024, that it would abandon its $320 million purchase of two Community Health Systems hospitals and related assets in North Carolina. The FTC originally alleged that the acquisitions would lead to Novant controlling nearly 65% of the market for general acute care services in Eastern Lake Norman. The health systems had represented that the acquired hospitals would likely be forced to close absent the transaction and that Novant’s purchase would maintain access to care and protect competition against a major player that was anticipated to expand in the area.
The parties abandoned the deal just a day after the US Court of Appeals for the Fourth Circuit enjoined the acquisition pending appeal by the FTC of a trial court decision rejecting the FTC’s motion for a preliminary injunction. With the Fourth Circuit’s injunction, which would have stalled the deal for potentially more than two years, the parties did not see a path forward. In denying the request for an injunction, the district court acknowledged that the FTC met its burden in demonstrating its alleged product and geographic markets – and found that the market share levels would establish a presumption of illegality under the Merger Guidelines – but held that an injunction would not be in the public interest. Specifically, the district court noted that an injunction would likely result in the immediate closure of one of the hospitals and the decline in competitive significance of the other during the pendency of the FTC litigation. This case may inform future use of the “failing firm defense” and rulings based on the public interest, but we view it as an outlier. |
| Fresh Express Inc. / Dole Plc | DOJ | Abandoned | Packaged salad market, 3-to-2 | Fresh Express, a wholly owned subsidiary of Chiquita Holdings Ltd., abandoned plans to acquire Dole’s Fresh Vegetable Division on March 28, 2024, following DOJ scrutiny. The Fresh Vegetable Division includes the processing and sale of vegetables as well as salads and meal kits. Fresh Express already had a large presence in several overlapping areas, including lettuce and salad kits.
Dole publicly announced the mutual termination was the result of the DOJ’s decision to pursue litigation to prevent the transaction. The parties had originally announced a $308 million deal in January 2023, but the government had expressed concern over the alleged 3-to-2 merger in a product market “purchased by 85% of American households.” |
NOTABLE EUROPEAN CASES
| PARTIES | AGENCY | CASE TYPE (CLEARED, CONSENT, CHALLENGED, ABANDONED) | MARKETS / STRUCTURE (AS AGENCY ALLEGED) | SUMMARY & OBSERVATIONS |
| Emirates Telecommunication Group Company PJSC / PPF Telecom Group B.V. | EC | In-depth investigation under the Foreign Subsidies Regulation (FSR) | Telecommunications | The acquisition by Emirates Telecommunications Group Company PJSC (e&) of PPF Telecom Group B.V., a European telecommunication operator active in Bulgaria, Hungary, Serbia and Slovakia, which notified the EC on April 26, 2024, will be subject to an in-depth investigation under the FSR.
The EC is concerned that loans from United Arab Emirates (UAE)-controlled banks and an unlimited guarantee from the UAE granted to e& may have improved its capacity to execute the deal and improve the competitive position of the target company in the EU, post-closing (as it was able to improve its capacity to finance its activities at preferential terms). During its in-depth investigation, the EC will assess whether:
An in-depth investigation can last up to 90 working days from the opening of such investigation. |
| Cooper / Viatris | EC | Cleared with remedies | Healthcare and pharmaceuticals | The EC cleared the proposed acquisition of the “over the counter” (OTC) business of Viatris Inc. (Viatris) by Cooper Consumer Health SAS (Cooper), subject to conditions (which shall be implemented under the supervision of an independent trustee).
First, the EC considered that the merger would have reduced competition in the markets for certain pharmaceutical products, specifically laxative enemas for infants in Portugal and earwax removal products in Germany and would have led to high combined market shares as well as high concentration levels in the affected markets. The EC also found that, post-merger, there would not be sufficient potential competitors to exert sufficient competitive pressure on the merged entity. To address the EC’s competition concerns, the parties proposed to divest (i) Cooper’s rights, title and interests in its infant laxative medicine Bebegel (including development and manufacturing rights to sell it in any form in Portugal and, at the option of the purchaser, in France) and (ii) Cooper’s rights, title and interests in its earwax removal product Otowaxol (including development and manufacturing rights to sell it in any form in Germany and, at the option of the purchaser, in Ireland). As modified by the parties’ commitments, the EC concluded that the transaction would no longer raise competition concerns. |
| EEX / Nasdaq Power | EC | Article 22 full referral | Trade of electricity / administration of final markets | The EC has accepted the requests submitted by three national competition authorities and one EFTA Member State to assess under the EUMR the proposed acquisition of Nasdaq’s European power trading and clearing business by European Energy Exchange AG (EEX).
The proposed acquisition does not reach the notification thresholds set out in the EUMR, and it was not notifiable in any Member State. Denmark and Finland submitted initial referral requests to the EC pursuant to Article 22 EUMR on their own initiative. Subsequently, Sweden and Norway joined the initial referral requests. The transaction appears to combine the only two providers of services facilitating the on-exchange trading and subsequent clearing of Nordic power contracts. As such services allow for the use of long-term energy contracts with set future prices and are therefore key for more stable and predictable energy prices, to the ultimate benefit of consumers and businesses, the EC would like to ensure a strong and competitive trading and clearing ecosystem to support the smooth functioning of energy markets, especially in the current context of energy crisis, according to their press release. The EC asked EEX to notify the transaction. EEX notified the transaction on May 3, 2024, and commitments were submitted on May 27, 2024. However, the parties cancelled the contemplated transaction on June 26, 2024. This means that the EC hit the trifecta of Article 22 enforcement with the termination of this transaction, following similar abandonments or divestiture orders in Illumina/Grail and Qualcomm/Autotalks. |
