Mergers & Acquisitions

Consistent with Assistant Attorney General Delrahim’s speech on September 25, 2018, the DOJ released a new Model Timing Agreement which sets out that it will require fewer custodians, take fewer depositions, and commit to a shorter overall review period in exchange for the provision of detailed information from the merging parties earlier in the Second Request process than has previously been required.

WHAT HAPPENED:

  • In November, the US Department of Justice (DOJ) published a new Model Timing Agreement (the Model) much like the FTC’s model published earlier this year. Timing agreements are agreements between agency staff and merging parties that outline expected timing for various events (g., production of documents and data, timeline for depositions and front-office meetings if needed) and help provide clarity for the agencies to conduct an orderly investigation during a Second Request.
  • By providing this Model, the DOJ is signaling that it wants certainty on timing during its Second Request reviews and that this Model is a fast way for the parties and the DOJ to come to agreement on these issues.
  • Some highlights of the DOJ Model include:
    • Parties must wait 60 days after substantial compliance to consummate transactions and give 10 days’ notice prior to closing.
    • The Model limits the number of custodians to 20 per party and depositions to 12 per party, except in extenuating circumstances.
    • The Model reserves the DOJ’s ability to add 5 more custodians at any time prior to filing a complaint, with the requirement that parties must produce those individual’s responsive documents within 15 days or the agreed timing will be tolled.
    • For document productions, depending on production method (technology assisted review or linear review), all responsive, non-privileged documents must be produced approximately 30-45 days before substantial compliance. Production of potentially privileged documents ultimately deemed not privileged must be produced approximately 10-25 days before the substantial compliance certification date.
    • Most data productions are required 30-45 days before substantial compliance.

Continue Reading THE LATEST: DOJ Announces New Model Timing Agreement for Merger Investigations

The Premerger Notification Office (PNO) of the Federal Trade Commission (FTC) recently formalized a new position on Hart-Scott-Rodino Act (HSR Act) reporting obligations for certain not-for-profit, non-stock transactions. The change is currently in effect and applies to transactions that have not yet closed. The change in position will require reporting of many hospital transactions that have not traditionally been treated as reportable events. The biggest area of change relates to affiliation transactions where hospitals or health systems affiliate under a new parent entity.

Under its previous position, the PNO focused on whether a transaction results in a change of “control” of the board of directors of one or more of the combining entities. Under its new position, the PNO will focus on beneficial ownership–whether one party receives beneficial ownership over the assets of another party as a result of the transaction. Now, a potentially reportable acquisition can occur even when there is no change in the control of the board of directors of one of the combining entities because formal board control is not the exclusive method of obtaining beneficial ownership.

In a recently published Tip Sheet, the PNO provided analysis of reportability for three types of not-for-profit combinations that it regularly sees, which we summarize below. The first two examples involve traditional application of the rules to hospital transactions, while the third example represents the PNO’s newly formed position on affiliations. Note that in all of the examples below, we focus on the nature of the transaction structure to evaluate whether a potentially reportable acquisition of assets has occurred. In any specific transaction, the parties would also need to evaluate whether the statutory thresholds are met (e.g., the $84.4 million size-of-transaction test), as well as whether any exemption applies.

1. A simple acquisition in which an existing acquiring person (g., a not-for-profit hospital) is deemed to hold the assets of the acquired entity (e.g., another not-for-profit hospital) as a result of the acquisition. This can happen in a variety of ways, such as a straight asset acquisition or a transaction in which one not-for-profit becomes the sole corporate member of another. If one not-for-profit obtains the right to manage and operate another through a corporate transaction, that is likely a reportable structure.

a. PNO conclusion: This structure is reportable as an asset acquisition.

2. A transaction in which the existing not-for-profit entities remain independent but form a new joint venture entity as a jointly owned subsidiary or affiliate. The pre-existing entities remain separate persons for HSR Act purposes.

a.  PNO conclusion: This structure is reportable. However, the 16 C.F.R. § 802.40 exemption for the formation of a not-for-profit joint venture is likely to apply.
b. The illustration below depicts this structure:

3. A transaction in which the existing not-for-profit entities consolidate under a new not-for-profit entity. The existing entities lose their separate pre-acquisition identities or become wholly owned subsidiaries of the new entity. The exact structure of board appointment for the members of the not-for-profit entities does not drive the reportability assessment.

a. PNO conclusion: Under the PNO’s new position, the transaction is reportable as a consolidation.
b. The illustration below depicts this structure:

In the Tip Sheet, the PNO described several factors that it has considered relevant to the analysis of beneficial ownership in the context of hospitals affiliating under a new entity:

  • The new entity becomes the corporate member of the affiliating hospital entities
  • The new entity has the right to authorize and/or approve the articles, bylaws, and other governance documents of the affiliating hospital entities
  • The new entity has the right to authorize and/or approve the sale or lease of the affiliating hospital assets
  • The new entity has the right to appoint and/or approve the senior officers of the affiliating hospital entities
  • The new entity has the right to devise and/or approve the strategic plans, capital budgets and expenditures, and significant contracting of the affiliating hospitals

Overall, not-for-profit hospital systems need to plan for HSR Act filings being required for many transactions that, under prior PNO analysis, would not have required notification. While the FTC would routinely investigate hospital affiliations that did not require HSR Act filings, the FTC will have additional procedural leverage when there is a mandatory filing, which creates the statutory waiting periods and Second Request mechanisms.

The Department of Justice (DOJ) and six broadcast television companies reached settlements last week after the DOJ claimed that the companies shared competitively sensitive information that allowed the parties to alter the way prices were set in the television spot advertising market. Assistant Attorney General Makan Delrahim explained in a speech at the ABA Antitrust Section Fall Forum on November 15 that the government’s investigation was triggered by information produced in the merger investigation of two of the defendants, Sinclair and Tribune, which was abandoned earlier this year. The case has important implications for companies and serves as a cautionary tale related to information sharing.

WHAT HAPPENED:

  • The investigation reportedly began from DOJ’s review of the $3.9 billion proposed acquisition of Tribune by Sinclair earlier this year. The parties abandoned the merger this past summer after the Federal Communications Commission (FCC) referred the matter to an administrative law judge and delayed approval.
  • On November 13, DOJ filed a complaint and competitive impact statement against six television broadcast station companies, each of whom sells spot advertising to advertisers in the US or owns and operates broadcast television stations. With the complaint, DOJ simultaneously filed six proposed settlements with defendants.
  • The complaint alleges that the defendants and other broadcasters reciprocally exchanged revenue pacing information and other forms of competitively sensitive sales information in specific designated marketing areas in real time for each individual competitor. Pacing information shows a station’s remaining advertising inventory and that station’s performance compared to the market.
  • DOJ claimed that the information sharing occurred both directly between parties and through Sales Reps Firms, who represent broadcast stations in negotiations with advertisers or advertisers’ agents over spot advertising. This indirect sharing occurred despite the existence of firewalls to prevent coordination and information sharing between sales teams at the Sales Reps Firms representing competing stations. DOJ claimed that the exchanges occurred with defendants’ knowledge and frequently at defendants’ instruction.
  • As a result of the information sharing, DOJ argued that the stations were able to understand the availability of spot advertisement inventory on competitors’ stations in real time. DOJ also argued that the stations used the information to anticipate whether other companies would raise, maintain, or lower prices for spot advertising. The information exchanges therefore “distorted the normal price-setting mechanism in the spot advertising market and harmed the competitive process” and were unreasonable restraints of interstate trade and commerce.
  • The settlements that are proposed by DOJ prohibit defendants from sharing competitively sensitive information directly or indirectly. The settlements require defendants to institute antitrust compliance officers, and compliance and reporting programs, and to fully cooperate in the DOJ’s ongoing investigation. The final judgments are set to expire seven years from the date of entry, but give DOJ the ability to terminate after five years.
  • The proposed settlements indicate that DOJ recognizes certain allowable exchanges of information. DOJ explains that aggregated competitively sensitive information may be communicated if it is handled by a fully independent third party, so long as the information is historical total revenue or other geographic or characteristic information, and is sufficiently aggregated so it does not allow recipients to identify the specifics.

WHAT THIS MEANS:

  • This case is an example of DOJ strictly enforcing the rules on information sharing between competitors. The proposed settlements clarify that high-level, aggregated, historical information may be shared, but not real-time information about individual competitors.
  • DOJ is not retracting its position on exchanges of price and cost information that fall in the “antitrust safety zone” described in the 1996 Statement of DOJ and Federal Trade Commission (FTC) Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information. In that statement, DOJ and FTC together outlined that surveys managed by third parties, that contain information greater than 3 months old, and that have at least five providers reporting, with no individual representing more than 25 percent of the data, can be shared without challenge though the surveys include prices for services, wages, salaries, or other sensitive information. These guidelines were not followed in the case at hand, which illustrates the importance of staying in the “safety zone.”
  • The matter also demonstrates how a merger investigation can lead to a collateral investigation and significant consequences for the parties.
  • Companies, especially those in consolidated industries such as the television broadcasting business here, are best served by confirming that all parties understand the guidelines regarding information sharing, and instituting antitrust compliance programs to ensure that guidelines are followed.

United States: July – September 2018 Update

Both US antitrust agencies marked the third quarter of 2018 with significant policy announcements regarding the merger review process. The announced reforms seek to expedite the review process through cooperation between the agencies and the merging parties. Moving first, the Federal Trade Commission (FTC) revealed a Model Timing Agreement that provides the FTC Staff with earlier notice of the parties’ intent to substantially comply with a Second Request. Earlier notice allows the FTC Staff to create a more effective timeline for meetings with division management, front office staff and the Commissioners. Less than two months after the FTC revealed its Model Timing Agreement, the Antitrust Division of the US Department of Justice (DOJ) announced procedural reforms aimed at resolving merger investigations within six months of filing. The DOJ will commit to fewer custodians and depositions in exchange for the merging parties providing key information earlier in the investigation. Overall, these reforms appear to be a positive step forward for parties considering future transactions, but their effectiveness remains uncertain as the agencies start a difficult implementation period. While the FTC timing agreement may provide more certainty around the process, it does not reduce the review timing and actually extends it.

EU: July – September 2018 Update

The European Commission (EC) remained quite active clearing mergers in the third quarter of 2018. Most notably, the EC cleared Apple’s acquisition of Shazam without imposing conditions despite the EC’s stated concerns about access to data as a competitive concern. The EC opened a Phase II investigation into the transaction to investigate the potential for Apple to obtain a competitive advantage over competing music streaming services by accessing Shazam’s consumer data obtained through its music recognition services. In this case, the EC did not find evidence that the access to Shazam’s data would provide Apple a competitive advantage. In addition, the EC found that there were no concerns about Apple potentially restricting Shazam as referral source for Apple’s competitors. Going forward, it is clear that access to data is an issue that the EC will continue to investigate, but it is also clear that the EC is taking a careful approach in assessing when that access will truly lead to a competitive harm.  Continue Reading Antitrust M&A Snapshot

Antitrust laws protect competition and consumers. Antitrust enforcement is prevalent in actions concerning manufacturing and consumer goods, among other things. However, recent enforcement activity by the Federal Trade Commission (FTC) and Department of Justice’s Antitrust Division (DOJ) serves as a reminder that the services industry, particularly healthcare services, is not immune to antitrust scrutiny as well.

Antitrust enforcement and healthcare policy were two priorities under President Obama. So, too, was antitrust enforcement within healthcare markets. The current administration prompted speculation on whether it would change its emphasis in any of these respects. We examine in this article whether the Trump Administration, now a year and a half into its term, has shifted focus or instead has stayed in the hunt for antitrust violations in the healthcare industry. As discussed below, the record of healthcare antitrust enforcement actions over the last five years, spanning both administrations, demonstrates that healthcare has been and remains a priority for civil and criminal antitrust enforcement by the US antitrust agencies and state Attorneys General. Continue Reading Healthcare and Antitrust Enforcement: Continuity through the Administrations

Today, Assistant Attorney General Makan Delrahim announced a series of reforms with the express goal to resolve most merger investigations within six months of filing. The reforms seek to place the burden of faster reviews not only on the Antitrust Division of the Department of Justice (DOJ), but also on the merging parties.

The DOJ will require fewer custodians, take fewer depositions, and commit to shorter time-periods in exchange for merging parties providing detailed information to the DOJ early in the investigation in some cases before a Hart-Scott-Rodino (HSR) filing is made. AAG Delrahim believes that merging parties need to avoid “hid[ing] the eight ball” and work with the DOJ in good faith to remedy transactions that raise competitive concerns.

By announcing these reforms, the DOJ acknowledges that merger reviews are taking longer in recent years. AAG Delrahim cited a recent report noting that the length of merger reviews has increased 65 percent since 2013 and that the average length of a significant merger review is now roughly 11 months. AAG Delrahim believes an assortment of factors contribute to the increasing length of reviews including larger quantities of documents produced during a Second Request, increasing numbers of transactions with international implications, and the DOJ’s insistence on an upfront buyer for most consent orders. Continue Reading DOJ Announces Procedural Reforms Seeking to Resolve Merger Investigations within 6 Months of Filing

WHAT HAPPENED

  • The FTC posted a short article indicating that after finalizing a settlement package with FTC Staff, it takes approximately four weeks for the Directors of the Bureau of Competition and the Bureau of Economics (the Directors), as well as the Commission to review the Directors’ recommendations and vote on the package.
  • The FTC explained that an expedited review is unlikely, particularly when the parties’ actions contributed to the timing concerns.
  • The FTC provided a procedure for how parties seeking an expedited review should proceed, and outlining potential scenarios that would cause the FTC to look unfavorably upon the application–g., the parties caused their predicament. Expedited review is unlikely, for example, when:
    • The parties agreed to a too-early drop dead date or a ticking agreement that fails to properly account for antitrust review; or
    • Negotiations between the parties and the FTC on custodian review drag on or the parties provide responses to requests for documents and information that are incomplete.

WHAT THIS MEANS

  • Since the Merger Remedy Report was released in 2017, both the FTC and DOJ have taken steps to improve best practices for evaluating settlement packages. In particular, greater vetting of both the remedy package and buyer is the new norm, with more extensive information requests to establish the sufficiency of the settlement package. These changes are extending the merger review process when a settlement is necessary to address antitrust enforcer concerns.
  • In addition to its revised best practices for Staff development of settlement packages, this procedural move supports the FTC’s recent focus on developing protocols that allow it to take its due time in reviewing merger remedies.
    • Last month, the FTC published a new Model Timing Agreement that, if agreed to, provides the government additional time to evaluate cases beyond the statutory period.
    • The FTC has followed that move this month by setting out protocols and timing expectations for Directors and Commissioners to vet settlement packages advanced by Staff.
  • The latest move makes clear that the extended development of settlement packages by Staff will not lead to a curtailed review of those same settlement packages by the Directors or the Commission. Antitrust enforcers continue to take the principled view that enforcers must be cautious when approving a merger with remedies and any risks in the process should be shifted to the parties where appropriate.

WHAT HAPPENED:

  • On August 7, the FTC published a new Model Timing Agreement. Timing agreements are agreements between FTC staff and merging parties that outline the FTC’s expected timing for various events in order for it to conduct an orderly investigation during a Second Request.
  • The FTC expects the Model Timing Agreement to be used as drafted (or in a similar form) for all transactions that receive a Second Request. The FTC has used timing agreements frequently in the past, as has the DOJ, but the FTC has now published a model, which means this is likely to become the standard practice moving forward.
  • Parties are not required to enter into a timing agreement. However, in practicality, if parties do not agree to the timing agreement, the agency will proceed as if it must be in court to block the deal within 30 days of compliance. Therefore, it will prepare for litigation and will not consider settlement options or engage with the parties on the issues in the same way it would if the agency had more time under a timing agreement.
  • Some highlights of the new Model Timing Agreement are provided below (Note: All days listed refer to calendar days):
    • Parties must provide 30 days’ notice before certifying substantial compliance, and such notice cannot be provided until at least 10 days after signing the timing agreement.
    • Parties cannot close a proposed transaction until a specified time period after substantial compliance with the Second Request. The model indicates this will be 60 days in less complex matters or 90 days in more complex matters, but could be longer than 90 days in “matters involving particularly complicated industries.”
    • Parties must provide 30 days’ notice before consummating the proposed transaction and cannot provide notice more than 40 days before the date on which they have a good faith basis to believe they will have cleared other closing conditions and will be able to complete the transaction, absent an FTC action to block the transaction.
    • The agreement includes a stipulated Temporary Restraining Order (TRO) which will be entered in the event of a challenge. The TRO prevents the parties from consummating the transaction until after five days following a ruling on a motion for preliminary injunction.
    • The timing agreement contains other timing-related provisions such as for document productions and investigational hearings as part of the FTC’s investigation.

WHAT THIS MEANS:

  • Though the Model Timing Agreement does not affect the statutory expiration of the HSR waiting period, it commits the parties not to consummate the transaction for a much longer period and, therefore, effectively extends the waiting period far longer than the 30 days specified under the HSR Act.
  • The 40-day notice required before the closing date means that if there is another condition in the way of closing, such as an ongoing investigation before the European Commission or in China, the parties cannot provide their notice of the anticipated closing date to the FTC. The FTC will not be forced to litigate until the parties are in a position to complete their transaction in the near term, absent an FTC challenge.
  • The FTC has made clear that parties either have to sign up to a much longer period for the HSR review process than the statute specifies or be in an adversarial posture that is less likely to lead to the agency closing its investigation or settling the matter and more likely to lead to a court challenge.

United States: April – June 2018 Update

The second quarter of 2018 ushered in a trial defeat for the US Department of Justice (DOJ) and the beginning of a new era at the Federal Trade Commission (FTC). In June, Judge Richard J. Leon of the US District Court for the District of Columbia denied the DOJ’s requested injunction of the AT&T/Time Warner acquisition. The case marked the first litigated vertical challenge by the Antitrust Division in nearly 40 years. DOJ filed a notice of appeal of the district court’s decision. At the FTC, four new commissioners were sworn in in May, with a fifth to join upon the approval of current commissioner Maureen Ohlhausen to the US Court of Federal Claims. With the transition nearly complete, new FTC Chairman Joseph Simons announced plans to re-examine and modernize the FTC’s approach to competition and consumer protection laws, possibly charting a new course for FTC antitrust enforcement.

EU: April – June 2018 Update

In this quarter, we saw two significant developments concerning the issue of gun-jumping. First, the Court of Justice of the European Union (CJEU) clarified the scope of the gun-jumping prohibition, ruling that a gun-jumping act can only be regarded as the implementation of a merger if it contributes to a change in control over the target. Second, the European Commission (EC) imposed a €124.5 million fine on Altice for having breached the notification and the standstill obligations enshrined in the EUMR by gun-jumping. The EC also issued two clearance decisions following Phase II investigations in the area of information service activities and the manufacture of basic metals. Continue Reading Antitrust M&A Snapshot

WHAT HAPPENED

  • The Wall Street Journal has reported that the Antitrust Division of the Department of Justice (DOJ) is currently investigating whether advertising sales teams for competing television station owners engaged in anticompetitive conduct regarding communications on performance levels. Per the Journal’s reporting:
  • DOJ is investigating whether the purported communications led to higher rates for television commercials.
  • DOJ’s industry-wide investigation developed from its review of Sinclair Broadcast Group’s (Sinclair) proposed acquisition of Tribune Media (Tribune).
  • As part of the DOJ’s merger review, Sinclair and Tribune received a “Second Request.” Responding to a Second Request typically involves the production of a wide range of company documents regarding competition in the industry under investigation.
  • Many times in the past, merging parties’ Second Request responses have led to separate anticompetitive conduct cases. A few notable examples are provided below:
  • In April 2018, DOJ brought a civil complaint alleging that three rail equipment companies had no-poaching agreements that depressed salaries and competition for their employees. The agreements were discovered during the review of an acquisition involving two of the three companies.
  • In 2003, DOJ filed a civil antitrust lawsuit to block the acquisition of Morgan Adhesives Company by UPM-Kymmene and, at the same time, opened a criminal investigation into price-fixing conduct in the labelstock industry.

Continue Reading THE LATEST: Collateral Risk in Merger Reviews