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Melanie A. Hallas focuses her practice on antitrust and competition matters. Melanie counsels clients on mergers and acquisitions, as well as on antitrust issues in licensing, distribution, pricing and competitor collaborations. Read Melanie A. Hallas' full bio.

WHAT HAPPENED:

  • Alimentation Couche-Tard Inc. (ACT) is a Canadian corporation and is engaged in the retail sale of gasoline and diesel fuel in the United States. Circle K Stores, Inc. (Circle K) is a wholly owned subsidiary of ACT. Circle K indirectly owns all of the membership interests in CrossAmerica GP LLC, CrossAmerica Partners LP’s (CAPL) general partner.
  • Pursuant to three separate Asset Purchase Agreements, dated August 4, 2017, ACT would acquire ownership or operation of all Jet-Pep, Inc. retail fuel outlets. Specifically, Circle K would acquire 18 retail fuel outlets, a fuel terminal and related trucking assets and CAPL would acquire 102 Jet-Pep retail fuel outlets.
  • While the purchases did not require an HSR filing, the FTC learned of the transaction, investigated and required remedies before allowing the transaction to proceed.
  • The FTC defined the relevant product markets as the retail sale of gasoline and the retail sale of diesel.
  • The FTC defined the geographic markets as local markets and identified the three separate geographic markets in Alabama including Brewton, Monroeville and Valley.
  • In its complaint, the FTC alleged that post-merger the “number of competitively constraining independent market participants” would be reduced “to no more than three in each local market.”
  • The FTC alleged that the proposed acquisition would result in (1) an increased likelihood that ACT would unilaterally exercise market power in the relevant markets; and (2) an increased likelihood of collusive or coordinated interaction between the remaining competitors in the relevant markets.
  • The FTC accepted a consent order in which ACT agreed to divest certain Jet-Pep retail fuel outlets and related assets to remedy concern in three local geographic markets in Alabama. ACT must complete the divestiture to a Commission-approved buyer within 120 days after the acquisition closes.

WHAT THIS MEANS:

  • This consent decree is a reminder that even when a transaction is not HSR reportable, the transaction may still be reviewed and challenged by the FTC and DOJ.
  • Local geographic markets are highly fact specific. Factors used to determine local geographic markets for retail gasoline and retail diesel include: commuting patterns, traffic flows and outlet characteristics unique to each market.
  • If the proposed divestiture package is something less than a complete, autonomous and operable business unit, the parties must show that their proposed package will enable the buyer to maintain or restore competition in the market.
  • FTC and DOJ may not require a buyer-up-front where they have significant experience in the industries at issue, and where the ownership interest is a high-value, low-risk asset (e.g., retail fuel business) that is likely to generate substantial interest from more than one potentially acceptable buyer.

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

Read the full report here.

On July 6, 2016, Danone S.A. (Danone) agreed to acquire The WhiteWave Foods Company (WhiteWave) for $12.5 billion.

WhiteWave is the leading manufacturer of fluid organic milk in the United States and one of the top purchasers of raw organic milk. Danone is the leading US manufacturer of organic yogurt (Stonyfield). Nearly 90 percent of the raw organic milk used by Danone to manufacture organic yogurt is supplied via a strategic agreement by CROPP Cooperative (CROPP). As of 2009, the strategic supply agreement between Danone and CROPP also includes Danone providing CROPP with an exclusive license for the production and sale of Stonyfield branded fluid organic milk.

WhiteWave and CROPP are the two largest purchasers and top competitors for purchasing raw organic milk from farmers in the Northeast US. Additionally, WhiteWave, CROPP and Danone-CROPP are the only nationwide competitors for the sale of fluid organic milk to retailers and have a 91 percent share of nationwide branded fluid organic milk: Horizon (WhiteWave), Organic Valley (CROPP) and Stonyfield (Danone-CROPP). Continue Reading THE LATEST: Entanglements and Concentrated Markets Require Divestiture in the Dairy Industry

A private lawsuit filed by Retrophin Inc. (Retrophin), under then-CEO Martin Shkreli, likely triggered an investigation by the FTC into a consummated transaction.  Both the private lawsuit and the FTC complaint resulted in settlement.  In addition, the FTC levied a $100 million penalty.

WHAT HAPPENED:

  • In 2013, Questcor Pharmaceuticals, Inc. (Questcor) acquired the U.S. rights to Synacthen Depot (Synacthen) from Novartis (Mallinckrodt later acquired Questcor).
  • Questcor’s $135 million deal with Novartis out-bid several companies seeking to acquire Synacthen, including biopharmaceutical company Retrophin, who bid $16 million for the Synacthen license.
  • In 2014, Retrophin (under then-CEO Martin Shkreli) filed suit against Questcor, alleging that the purpose of the transaction between Questcor and Novartis was to eliminate competition for Achthar, Novartis’ ACTH drug used to treat infantile spasms and nephrotic syndrome, by shutting down Synacthen.
  • Retrophin’s case was settled in 2015 with Mallinckrodt (who acquired Questcor in the interim) paying Retrophin $15.5 million.
  • There are reports that the FTC challenged the consummated transaction of Questcor/Novartis following Retophin’s lawsuit. The FTC’s challenge recently resulted in a $100 million monetary payment and licensing of Synacthen for treatment of infantile spasms and nephrotic syndrome to an FTC approved licensee.

WHAT THIS MEANS:

  • Even if a transaction is non-reportable under the Hart-Scott-Rodino (HSR) Act, the FTC or DOJ may open an investigation into the transaction. The Questcor/Novartis transaction was not reported under the then-existing HSR rules because Novartis, the licensor, retained some manufacturing rights to Synacthen.
  • The FTC and DOJ may learn about potentially anticompetitive transactions in numerous ways, including HSR filings, news reports, complaints from disgruntled customers or competitors, private litigation involving the transaction, and as shown here, from the losing bidder.
  • HSR clearance or a determination that a transaction is not HSR reportable does not mean that the transaction is free and clear of government antitrust investigations or private litigation.

The Federal Trade Commission (FTC) has looked at licensing boards many times in the past and advocated for regulations with less restriction that promote competition.  There are numerous examples of antitrust regulators’ interest in occupational licensing and competition concerns, including Advanced Practice Registered Nurses in the VA, non-lawyers in the provision of legal services, and dental regulatory boards.  Acting Chairman Maureen Ohlhausen recently gave a speech at the Antonin Scalia Law School addressing economic liberty, including a critique of occupational licensing where she stated, “I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows.”

WHAT HAPPENED:

  • Acting Chairman Ohlhausen reiterated her view that occupational licensing inhibits economic liberty. “Market dynamics will naturally weed out those who provide a poor service, without danger to the public.  For many other occupations, the costs of added regulation limit the number of providers and drive up prices.  These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services.”
  • In the 1950s, less than five percent of jobs required a license. Today, approximately 25 to 30 percent of jobs require a license.
  • Different states regulate different occupations, and licensing requirements for the same occupations often vary significantly among states.
  • In her speech, Acting Chairman Ohlhausen said she is creating an Economic Liberty Task Force within the FTC. This task force will focus on occupational licensing regulations.

WHAT THIS MEANS:

  • We will likely see an increase in FTC actions involving licensing boards, such as in North Carolina Dental, where it is not the state itself acting but self-interested active market incumbents who impose occupational licensing requirements that limit competition.
  • The FTC Task Force will seek to “eliminate and narrow overbroad occupational licensing restrictions that are not narrowly tailored to satisfy legitimate health and safety goals.”
  • The FTC will help states identify problematic occupational licensing and reforms that promote reciprocity among states. We could see a roll back of occupational regulations.
  • Licensing boards and those who are involved in licensing regulations should examine the ways in which the regulation affects or could affect competition, whether there is evidence that a regulation is necessary to achieve the targeted policy goal, whether the regulation is narrowly tailored to meet the policy goal, and whether a less restrictive alternative is available to achieve the policy goal and benefit competition.

The Federal Trade Commission (FTC) challenged a consummated transaction using a monopolization theory to allege that the acquisition would eliminate “nascent” competition for therapeutic adrenocorticotropic hormones (ACTH) in the United States.

WHAT HAPPENED:

  • Questcor Pharmaceuticals, Inc.’s (Questcor) H.P. Acthar Gel (Acthar) is the only ACTH product sold in the US, is the standard of care for infantile spasms and is indicated for several other diseases.
  • In 2013, Questcor acquired the US rights to Synacthen Depot (Synacthen) from Novartis. Questcor was subsequently acquired by Mallinckrodt.
  • Synacthen is pharmacologically very similar to Acthar, as the active ingredient in both drugs is an ACTH molecule.
  • At the time of the acquisition by Questcor, Novartis’ Synacthen had been used safely and effectively for decades in Europe, Canada and other parts of the world to treat patients suffering from infantile spasms and other diseases. Synacthen had not yet begun US clinical trials.
  • The FTC alleged a monopolization theory—that Questcor had “extinguished a nascent competitive threat to its monopoly” by outbidding several other companies who were interested in bringing Synacthen to market in the US to compete with Questcor’s Acthar.
  • Then FTC Chairwoman Edith Ramirez (she has since resigned) noted that Questcor had a history of taking advantage of its monopoly, repeatedly raising the price of Acthar “from $40 per vial in 2001 to more than $34,000 per vial today—an 85,000 percent increase.”
  • The FTC settlement requires a $100 million monetary payment and that Mallinckrodt (Questcor was acquired by Mallinckrodt) license Synacthen for treating infantile spasms and nephrotic syndrome to an FTC approved licensee.

WHAT THIS MEANS:

  • In some circumstances, an action by a monopolist to block a nascent threat to its monopoly can violate the antitrust laws.
  • Typically, the FTC does not challenge pharmaceutical overlaps involving pharmaceuticals that have not yet entered Phase 3 clinical trials because there is still significant uncertainty that a product will ultimately come to market.
  • The FTC appears to have made an exception to its typical practice because Synacthen was anticipated to gain US approval easily and compete significantly with Acthar. Synacthen was approved outside the US for decades and was understood to be a safe and effective ACTH treatment.
  • The FTC may bring an action at any time under Section 7 to determine the legality of an acquisition. However, the FTC challenged this consummated transaction under a Section 2 theory of monopolization. The FTC has many tools to challenge actions under the antitrust laws.

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

Read the full report here.

 

In pharmaceutical transactions involving generic products, the Federal Trade Commission (FTC) has typically focused on narrow antitrust theories of harm and applied a narrow product market analysis often limited to a treatment for a particular indication (and sometimes to a specific mechanism of action). In these transactions, the FTC has consistently required fixes for generic overlaps when the transaction (1) reduces the number of significant generic competitors in a particular product market to three or fewer or (2) involves the combination of a branded pharmaceutical product with a “first-to-file” generic for the same product for which there are no other generics yet on the market. Using this narrow methodology, pharmaceutical transactions involving generics that required a fix could move through the FTC review process very quickly and generally achieve clearance in approximately six months from filing.

Continue Reading FTC’s Largest Pharmaceutical Divestiture Gives Insight into Broader Theories of Harm

The Federal Trade Commission (FTC) and US Department of Justice’s (DOJ) Antitrust Division have been actively challenging mergers and acquisitions (M&A) across a variety of industries where there is not a viable or acceptable remedy to mitigate the agencies’ competitive concerns. Parties to M&A transactions that the FTC or the DOJ believe are likely to harm competition may remedy those concerns by divesting certain businesses or assets. The parties may divest the business or assets that raise anticompetitive concerns and proceed with the remainder of the transaction. Divestitures in horizontal mergers (i.e., transactions between competitors) aim to maintain or replace the competition in the relevant market that might otherwise be lost as a result of the transaction.

Proposed divestitures are evaluated on the particular facts of the case and must be robust enough to present a viable competitor. Recent transactions demonstrate that the FTC and DOJ will reject divestiture proposals that the agency finds insufficient, putting the entire deal at risk for merging parties. Before proposing a remedy to the FTC or DOJ, parties should keep the following in mind: (1) in today’s enforcement environment, the agencies are more demanding in seeking effective remedies; (2) the agencies are more likely to  require a buyer up front, particularly if the parties seek to divest assets that are less than an entire on-going, stand-alone business, or the to-be-divested assets are at risk of deterioration pending divestiture; and (3) a buyer must be competitively and financially viable.

Read the full article here.

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

United States: January – June Update

The Federal Trade Commission (FTC) and US Department of Justice (DOJ) have been actively challenging mergers and acquisitions in the first half of 2016. In some instances, the parties abandoned their deal once the FTC or DOJ issued a complaint, in others, the parties entered into consent agreements with the agencies. In matters where a divestiture is an acceptable remedy, the FTC and DOJ have required robust divestitures with financially and competitively viable buyers. There is increasing pressure for broad divestitures and for upfront buyers in industries where the agencies do not have ample experience and where there may not be multiple competitive buyers willing to acquire the assets.

In merger challenges, the agencies have been successful in obtaining preliminary injunctions in Washington, DC, but have been less successful outside of their home court. The agencies have successfully argued price discrimination markets, where sales of products to a narrow group of customers were the market, and courts are accepting the agencies’ narrow market definition. We also see a trend in challenges due to innovation, where the merging parties are the market leaders in new developments and research and development in particular areas. Investigations continue to take many months, with many approaching or exceeding a year.

EU: January – June Update

In the EU, there has been a noticeable increase in the number of notified transactions to the European Commission (from 277 notifications in 2013 to 337 in 2015). Most of these transactions have been cleared by the EU regulator in Phase I without any commitments. However, there have still been a number of antitrust interventions requiring the merging parties to offer, often far-reaching, remedies. One industry has recently seen a particularly high ratio of antitrust intervention is the telecoms sector. For example, in the merger between the mobile operators Telenor and TeliaSonera, the parties abandoned the transaction due to European Commission opposition to the transaction. The European Commission publicly announced that the transaction would not have been cleared, and that the remedies offered by the companies were not convincing. A prohibition decision was also issued, despite the offered remedies, in the failed combination of Telefónica UK’s “O2” and Hutchison 3G UK’s “Three”. This transaction involved the longest merger control review by the European Commission to end up in a prohibition decision (243 calendar days, compared to the average of 157 calendar days to block a deal).

With regard to current trends in merger control remedies at the level of the European Commission, there continues to be a strong preference for structural remedies. Approximately 70 percent of merger remedy decisions between 2011 and 2015 involved divestitures. The European Commission prefers structural remedies because they entail a lasting structural change and there is no need for long-term monitoring.

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