April - June 2019 Update
United States
The US agencies continue to be aggressive and have blocked transactions or required significant remedies during the second quarter. The agencies cleared three mergers where divestitures were required. In the face of Federal Trade Commission (FTC) or Department of Justice (DOJ) opposition, companies abandoned several transactions, including between Republic National Distribution Company and Breakthru Beverage Group. For vertical transactions, we continue to see a split between the FTC Republican and Democratic Commissioners regarding whether enforcement is required and the appropriate remedies. In addition, we continue to see aggressive state attorney general merger enforcement. Not only did multiple states challenge the Sprint/T-Mobile transaction, but, also, the Colorado Attorney General imposed its own remedies on vertical issues in the United Health/DaVita transaction, where the FTC did not require any remedies in Colorado. In the high-tech space, federal and state regulators continue to discuss whether consummated transactions by large tech companies should be investigated and challenged. The DOJ’s chief economist recently gave a speech where he suggested it may be appropriate to investigate consummated transactions under Section 2 of the Sherman Act rather than Section 7, which could potentially lead to novel challenges. Lastly, based on public reports, the DOJ’s merger process reforms announced last year appear to be leading to faster merger reviews for many transactions (e.g., IBM/Red Hat, which only took 8 months). In contrast, the FTC merger review process appears to be taking longer, as demonstrated by the United Health/DaVita transaction, which took approximately 18 months to obtain FTC approval.
European Union
During the second quarter of 2019, the European Commission (EC) published a report on competition policy for the digital era, which deals with, among other things, acquisitions of nascent competitors. The EC also closed two merger control proceedings subject to divestitures, including acquisitions by the Liberty House Group and Harris Corporation. The EC blocked a proposed joint venture between ThyssenKrupp and Tata Steel, respectively the number 2 and number 3 producers of flat carbon steel in the European Economic Area, finding that the combination would have resulted in higher prices in a key industry in the EU. Last, the EC showed that it will seek large fines for companies violating EU competition rules for merger notifications. The EC imposed fines on General Electric (GE) for allegedly providing incorrect information to the EC during its review of GE’s acquisition of LM Wind, and on Canon for implementing its acquisition of Toshiba Medical System Corporation before notification to the EC.
Snapshot of Events
United States
- DOJ Speech on Section 8 Enforcement
Assistant Attorney General Delrahim emphasized the Division’s interest in the enforcement of the prohibition on “interlocking directorates” found in Section 8 of the Clayton Act. The focus of Delrahim’s speech was on institutional investors and the manner in which Section 8 of the Clayton Act relates to Section 1 of the Sherman Act. In this connection, he stated that “institutional investors risk liability under Section 1 . . . if they coordinate conduct between competing firms in which they have investments.” In short, the Division has expressed concern that institutional investors—those with holdings in multiple companies competing in a given field—will act to coordinate between the competitors in violation of Section 1. Delrahim also gave the DOJ’s view on whether Section 8 applies to non-corporate entities such as partnerships and limited liability companies. He indicated that the same competitive analysis should apply “whether one LLC competes against another, whether two corporations compete against each other, or whether an LLC competes against a corporation,” and that the DOJ and FTC are “thinking about how to bring this thinking to Section 8 as well.”
- DOJ Speech on Potential Competition in Platform Markets
Acting Deputy Assistant Attorney General Wilder discussed why “potential competition cases in platform markets are hard.” In other words, he noted that it is very difficult for the DOJ to challenge acquisitions by large incumbent platforms of start-ups active in adjacent markets that could pose a potential competitive threat to the platforms. According to Wilder, one solution might be to bring an action under Section 2 of the Sherman act, which seeks to address anticompetitive conduct by companies with monopoly power. This would enable the DOJ to take into account a dominant company’s pattern of conduct and acquisitions. But, such an approach would have its own challenges, since the DOJ would need to prove that the acquirer has monopoly power or a specific intent to monopolize and a dangerous probability of achieving monopoly power.
European Union
- EC Publishes a Report on Competition Policy for the Digital Era
On April 4, 2019, the EC published a report prepared by three special advisors appointed by EU Competition Commissioner Margrethe Vestager on how competition policy should evolve in the digital era. While the report is non-binding on the EC, Commissioner Vestager has since made frequent references to the report. The report covers a wide range of topics, notably in relation to issues presented by so-called “killer acquisitions,” (i.e., acquisitions of small innovative companies with significant competitive potential by big companies), and discusses whether the current EU merger control regime needs to be adjusted to capture these types of transactions, which fall below the EU jurisdictional thresholds.
- Simplification of Merger Control in France
Following a public consultation launched in October 2017, the French Competition Authority (FCA) issued an opinion on possible legislative changes and presented measures intended to simplify and modernize merger control. On April 20, 2019, a decree simplifying merger notifications to the FCA was published. Under the decree:
- The volume of financial data to be provided by the parties in a merger control notification to the FCA has been considerably reduced.
- The market share threshold at which a market is considered to be vertically affected by a merger has increased from 25% to 30%.
- Updates from the United Kingdom (UK)
The UK Competition and Markets Authority (CMA) continues to be an aggressive regulator, having recently pushed its review of Illumina/PacBio into a Phase 2 and issued an interim enforcement order in a global transaction, requiring Roche to hold separate the target (Spark) even prior to the companies’ filing with the UK CMA. With Brexit, companies should expect more UK CMA merger reviews, which can significantly impact the regulatory review timeline.
Snapshot of Enforcement Actions
United States (Timing from Signing to Consent or Investigation Closing)
European Union (Timing from Signing to Clearance)
SIGNIFICANT TRIALS / COURT OPINIONS
[1] The information in this column summarizes the government’s allegations. McDermott Will & Emery LLP offers no independent view on these allegations.
[2] Early in the third quarter, the DOJ cleared the transaction with structural and behavioral remedies, but the states have publicly committed to continue the litigation. The trial is scheduled to begin on December 9th.
SIGNIFICANT US CONSENT ORDERS / INVESTIGATION CLOSING WITH AGENCY STATEMENTS
[3] The information in this column summarizes the government’s allegations. McDermott Will & Emery LLP offers no independent view on these allegations.
SIGNIFICANT EC CLEARANCE DECISIONS
[4] The information in this column summarizes the government’s allegations. McDermott Will & Emery LLP offers no independent view on these allegations.
SIGNIFICANT CHALLENGED OR ABANDONED TRANSACTIONS
[5] The information in this column summarizes the government’s allegations. McDermott Will & Emery LLP offers no independent view on these allegations.
