Mergers & Acquisitions
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General Court Upholds European Commission’s Power to Review Illumina-Grail Despite Untriggered Turnover Thresholds

In Illumina v Commission, the General Court has confirmed the authority of the European Commission (EC) under Article 22 EU Merger Regulation (EUMR) to examine a transaction that does not have a European dimension, but which is the subject of a referral request made by a Member State – even if the transaction is not notifiable in that Member State.

INTRODUCTION

Article 22 EUMR includes a referral mechanism whereby one or more Member States may request the EC to examine any transaction insofar as it does not have an EU dimension but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request (Article 22 Conditions).

With a view to ensuring that non-notifiable yet potentially problematic mergers do not fly under the radar of merger control review, in March 2021 the EC issued practical guidance (Article 22 Guidance) on when it might be appropriate for a Member State to refer such mergers to the Commission. The EC referred in particular to the digital and pharmaceutical sectors (see our On the Subject on the Article 22 Guidance here).

In Illumina v Commission, which concerns a transaction in the pharma sector, the General Court has confirmed that the EC has the authority to examine transactions that do not have a European dimension nor fall within the scope of the national merger control rules of EU or EFTA Member States.

PROCEDURAL BACKGROUND

On September 21, 2020, Illumina, an American company specializing in genomic sequencing, announced its intention to acquire sole control of Grail, an American biotechnology company which relies on genomic sequencing to develop cancer screening tests, to “Launch New Era of Cancer Detection” (the Transaction).

The EUMR thresholds were not met by the Transaction, nor were any EU or EFTA Member State thresholds. The Transaction was therefore not notified to the EC nor any of the EU or EFTA Member States. However, on December 7, 2020, the EC received a complaint concerning the Transaction and, on investigation, reached the preliminary conclusion that the Transaction appeared to satisfy the Article 22 Conditions for referral to the EC by a national competition authority. The EC subsequently on February 19, 2021 sent a letter to the Member States (the Invitation Letter) to inform them of the Transaction and to invite them to submit a referral request under Article 22. The French competition authority obliged and other Member States subsequently requested, each in its own right, to join.

On March 11, 2021, the EC informed Illumina and Grail of the referral request (the Information Letter) and about a month later, on April 19, 2021, it accepted the referral request, along with the respective requests to join (the Contested Decisions). This prompted Illumina, supported by Grail, to file suit before the General Court (against the Contested Decisions and the Information Letter).

On substance, Illumina argued that (i) the EC lacked the competence to initiate, under Article 22 EUMR, an [...]

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FTC Takes Action Limiting Overbroad M&A Non-Compete

WHAT HAPPENED

  • GPM Investments (GPM) acquired 60 gas stations from Corrigan Oil (Corrigan).
  • As part of the acquisition agreement, Corrigan agreed not to compete for a period of time with the gas stations purchased from Corrigan. In addition, Corrigan agreed not to compete with GPM for another 190 gas stations that GPM already owned.
  • Few of the 190 existing GPM locations were “anywhere near an acquired Corrigan” gas station.
  • Because the transaction would reduce the number of competitors from 3-to-2 or fewer in five areas, the Federal Trade Commission (FTC) required divestitures in those areas.
  • Additionally, the FTC determined that the non-compete was overbroad, noting that the non-compete was “untethered to protecting goodwill acquired in the acquisition” because it affected gas stations in “areas geographically distinct from the acquired” gas stations. For this reason, the non-compete was highly suspect and warranted FTC scrutiny.
  • The FTC required the parties to revise the transaction agreement non-compete such that it was no longer in duration than 3 years and impacted an area no greater than 3 miles from each acquired gas station.

WHAT’S NEXT

  • FTC Chairwoman Lina Khan confirmed that some non-compete agreements that are part of a transaction agreement are “necessary to protect a legitimate business interest in connection with the sale of a business, such as the goodwill acquired in a transaction.”
  • Here, the non-compete terms were determined, however, to be “facially” overbroad in scope and unrelated to protecting any goodwill GPM was acquiring with the Corrigan stations.
  • The FTC’s action suggests that it is on the lookout for overbroad non-competes that are not reasonably related to a legitimate purpose even if part of a legitimate transaction agreement.
  • The action by the FTC provides sellers with an example to argue that onerous non-competes demanded by buyers have the potential to raise antitrust issues that could slow deal timelines, particularly if a non-compete is overbroad in relation to the products impacted, the duration of the non-compete, and/or the breadth of the geography covered.

Alex Grayson, a summer associate in the Washington, DC, office, also contributed to this article.




DOJ Antitrust Head Signals Aggressive Enforcement against Private Equity Transactions

US antitrust enforcers have signaled that private equity firms are the prime targets for upcoming aggressive antitrust merger enforcement. In a recent interview, US Assistant Attorney General Jonathan Kanter stated that the motive of a private equity firm may be “designed to hollow out or roll up an industry and essentially cash out,” which “is often very much at odds with the law, and very much at odds with the competition we’re trying to protect.”[1] His comment comes after Lina Khan, the current Federal Trade Commission (FTC) Chairwoman, stated that private equity roll-ups would be a focal point for the FTC.[2] It is not entirely unsurprising that progressive antitrust enforcers are focusing on private equity after the industry announced a record 14,730 deals last year globally worth $1.2 trillion, which was nearly double the previous high in 2007.[3] The above comments provide several key takeaways for stakeholders going forward:

  • As a general matter, these statements further solidify the notion that antitrust merger enforcement is going to continue to be extremely aggressive and indicate that the US Department of Justice (DOJ) and the FTC may closely scrutinize private equity transactions even if there is no obvious horizontal or vertical issue. For example, the DOJ and the FTC have already started investigating less traditional theories of harm, such as the impact on labor and the environment.
  • Private equity firms should expect the potential for heightened scrutiny in instances where a private equity firm has engaged in serial acquisitions within the same industry (known as roll-up transactions), especially in healthcare-related fields. It will be important for stakeholders to not only evaluate the current acquisition for competitive issues, but to also consider the impact of a long-term “roll-up” plan and its influence on pricing, service, and quality.
  • Watch for agencies to bring more Clayton Act Section 8 cases, which prohibits interlocking directorates (aka a single firm appointing officers and directors at multiple competitors).[4] Private equity firms often will appoint personnel to the boards of the firm’s portfolio companies, which may consist of horizontal competitors. Going forward, these appointments will require additional attention to avoid running afoul of Section 8.
  • The DOJ and the FTC will also have an enhanced focus on the impact of private equity firms acting as divestiture buyers when the agency orders merging parties to divest assets to preserve competition. Assistant Attorney General Kanter stated, “[I]n many instances, divestitures that were supposed to address a competitive problem have ended up fueling additional competitive problems.”[5]

While the degree to which agencies will more closely scrutinize private equity transactions remains unclear, it is crucial for private equity firms to engage antitrust counsel early in the transaction process both to evaluate the transaction at hand, as well as any future transactions that may, together, bring about enhanced regulatory scrutiny.

[1] Stefania Palma and James Fontanella-Khan, “Crackdown on buyout deals coming, warns [...]

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Antitrust M&A Snapshot | Q1 2022

In the United States, antitrust agencies continue with their aggressive merger enforcement posture. The agencies challenged four transactions this quarter, including multiple vertical mergers. The agencies are increasingly skeptical of merger remedies, including behavioral remedies and divestitures. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are working together to update the current Horizontal Merger Guidelines. The updated guidelines will likely signal a more aggressive enforcement posture.

The European Commission (Commission) blocked one transaction in Phase II and cleared two transactions. Three transactions were abandoned after the Commission initiated a Phase II investigation. The Commission made use of partial referrals to member state national competition authorities in two cases. It also ordered Hungary to withdraw its decision to prohibit Vienna Insurance Group’s (VIG) acquisition of AEGON Group’s Hungarian subsidiaries on foreign direct investment grounds, holding that Hungary’s prohibition decision infringed Article 21 of the EU Merger Regulation.

In the United Kingdom, the first quarter of 2022 also saw a number of Phase II investigations. Specifically, the Competition and Markets Authority (CMA) cleared one transaction in Phase II and blocked two other transactions in Phase II. One transaction was abandoned after the CMA initiated a Phase II investigation. The CMA blocked the merger of Cargotec and Konecranes just one month after the EC cleared the transaction subject to commitments in Phase II. The parties abandoned the transaction following the CMA’s decision.

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Heard on Day Two and Three of 2022 Antitrust Law Spring Meeting

On April 7 and 8, 2022, the American Bar Association’s Antitrust Law Section wrapped up its annual Spring Meeting. The event featured updates and remarks from several antitrust enforcers, including FTC Chair Lina Khan and US Assistant Attorney General for the Antitrust Division Jonathan Kanter. In this post, we share key takeaways from the final two days of the Spring Meeting.

FTC and DOJ Will Stay Focused on Litigation: Top officials at both US antitrust agencies highlighted the agencies’ full dockets and noted that litigation to enforce the antitrust laws will remain a top priority.

  • Three Directors from the Federal Trade Commission (FTC)—Holly Vedova, the Director of the Bureau of Competition; Samuel A.A. Levine, Director of Bureau of Consumer Protection; and Elizabeth Wilkins, Director of Office of Policy Planning—all emphasized that the FTC will work as one team and will not hesitate to initiate litigation.
  • Vedova noted the FTC’s recent success in several transactions being abandoned after the FTC initiated litigation. She expressed that the Bureau of Competition’s main focus will be litigation, where she believes her bureau will be most effective. Khan echoed these sentiments while speaking on a separate panel, emphasizing that two recently abandoned transactions were in the context of challenges to vertical transactions and that such challenges will continue to be a priority at the FTC.
  • Likewise, Kanter noted that the Department of Justice (DOJ) is not afraid to take on big cases or big companies and will not be afraid to litigate. He said the DOJ is just getting started and reiterated that the DOJ has more active cases than it has had in recent years.

Agencies Will Closely Scrutinize Potential Remedies in M&A: Both FTC and DOJ officials emphasized they will continue to examine the effectiveness of remedies and will only pursue strong remedies.

  • Kanter said that divestiture remedies will be the rare exception and will no longer be the norm. He further cautioned merging parties to avoid engaging in “regulatory arbitrage” and trying to leverage investigation outcomes in one jurisdiction against another because global cooperation among antitrust enforcers is high.
  • Vedova also indicated that the Bureau of Competition has no appetite for weak or uncertain settlements, especially those involving behavioral remedies, which have proven ineffective. The FTC will require meaningful structural relief to resolve competition concerns regarding a transaction.
  • Parties should also not expect the FTC to engage in long settlement discussions due to the unprecedented volume of merger reviews. Vedova noted that staff’s time is valuable and is much better spent preparing for litigation rather than negotiating remedies. She further indicated that the FTC will not engage in remedy discussions unless the Hart-Scott-Rodino (HSR) clock is stopped and timing agreements are tolled.
  • State attorneys general will similarly evaluate remedies and, if necessary, pursue additional remedies than those sought by federal antitrust enforcers. For example, in a recent dialysis acquisition, the state of Utah sought divestiture of a fourth clinic above the three divestitures required to [...]

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Heard on Day One of 2022 Antitrust Law Spring Meeting

This week, the American Bar Association’s Antitrust Law Section kicked off its annual Spring Meeting in Washington, DC, which features updates from the antitrust enforcers and substantive discussions on today’s most pressing antitrust issues. In this post, we share key takeaways from the first day of the Spring Meeting.

Agencies Continue to Be Hostile to M&A: Republican Federal Trade Commission (FTC) Commissioners Noah Phillips and Christine Wilson emphasized that the prevailing view under Democratic leadership at the antitrust agencies is that mergers provide no value and only carry costs.

  • Progressive leadership wants to “throw sand in the gears” to prevent deals from being proposed altogether. Recent policy changes are aimed at creating uncertainty, heightening risk and raising the transaction costs of doing deals to slow the pace of M&A activity.
  • Despite this, there was a precipitous drop in the number of FTC merger enforcement actions in the final year of the Trump administration (31) compared to the first year of the Biden administration (12).
  • There is no indication that early termination for Hart-Scott-Rodino (HSR) pre-merger notification filings will be reinstated.
  • “Close At Your Peril” letters are another tactic the agencies are using to heighten deal risk and deter parties from pursuing or consummating transactions, even though the antitrust agencies have always had the authority to investigate and challenge consummated transactions.
  • Many panelists commented on the lack of transparency between agency staff and merging parties on recent transactions. If the lack of transparency persists, it may create due process issues and problems for timing agreements that merging parties typically negotiate with staff.
  • The antitrust agencies are increasingly skeptical of the efficacy of structural and behavioral remedies to resolve competition concerns regarding a transaction. The Department of Justice (DOJ) Antitrust Division’s Principal Deputy Assistant Attorney General Doha Mekki said merging parties should expect the DOJ to reject “risky settlements” more often and instead seek to block transactions outright. Mekki said literature has shown that many merger settlements failed to protect competition.

Increased Antitrust Litigation Is on the Horizon: DOJ officials said companies should expect an increase in antitrust litigation on both civil and criminal matters.

  • The DOJ Antitrust Division has more cases in active litigation than it has had at any time in recent history. It currently has six active litigations involving civil matters and 21 ongoing litigations involving criminal matters.
  • The Antitrust Division is not considering cost as a gating factor for bringing new cases. Instead, it is bringing cases where it deems necessary to uphold the law and preserve competition. The DOJ is hiring more attorneys and using shared DOJ resources to support the increased rate of litigation.
  • The DOJ is also seeking faster access to the courts. Mekki indicated that in cases where potential anticompetitive harm resulting from a transaction is clear, the agency may file suit while an investigation remains pending and before merging parties have certified substantial compliance.

Updated Merger Guidelines Are Coming: Officials from both the FTC and [...]

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Mitigating Antitrust Risk in Defense Deals Amid Scrutiny

As the Biden administration calls for tougher antitrust enforcement, the aerospace and defense (A&D) industry faces increased antitrust scrutiny. In this Law360 article, McDermott’s Jon Dubrow, Lisa Rumin and Anthony Ferrara explain how policy changes by the Federal Trade Commission, the Antitrust Division of the US Department of Justice and the US Department of Defense may affect A&D industry participants in various aspects of their businesses, including mergers and acquisitions, teaming agreements and labor practices. The authors also offer suggestions to help these companies mitigate antitrust risk arising from heightened antitrust scrutiny of the industry.

Read more here.




Treasury Responds to Biden Administration Executive Order with Report, Recommendations to Increase Alcohol Industry Competition



On February 9, 2022, the US Treasury Department (Treasury) released a report with recommendations for how the Tobacco Tax and Trade Bureau (TTB), Federal Trade Commission (FTC) and Department of Justice (DOJ) can help drive competition in the beer, wine and spirits markets by stepping up conduct enforcement, adopting creative and nuanced theories of harm in merger reviews and implementing new regulations to decrease the burden on smaller industry participants. Treasury’s report is based, in part, on hundreds of comments received from industry participants and paints a detailed picture of the current landscape for alcohol beverage distribution and sale across the United States.

Read more here.




Annual European Competition Review 2021

In our super-connected age, we are inundated with information. It can be difficult to select what is really relevant to one’s business. The purpose of this Review is to provide legal counsel and their teams easy reference guidance on essential EU competition law developments covering key areas of law and policy, to help keep you up to date on the latest requirements.

Inside you’ll find:

Cartels and Restrictive Agreements
From geo-blocking to pay-for-delay agreements and bid-rigging, find out the latest legal developments in restrictive practices.

Abuse of Dominant Position
Excessive pricing in the healthcare sector and a monopoly on online searches are key areas of development.

Merger Control
Gun-jumping remains a real focus for the European courts, with additional judgments on the provision of misleading information in merger proceedings.

State Aid
Transfer pricing and rules governing subsidiaries are hot topics, with the courts keeping an eye on excess profits and tax rate schemes.

Legislative and Policy Developments
Digital markets is the focal point of policy development in Europe, as verticals agreements also come under scrutiny.

Click here to read the full Review.




Antitrust M&A Snapshot | Q4 2021

In the United States, antitrust agencies have now filled senior leadership positions, although the Federal Trade Commission (FTC) awaits the appointment of a fifth commissioner. Challenges to mergers continue apace at both the FTC and the Department of Justice (DOJ). The agencies challenged two mergers in the fourth quarter and a third transaction was abandoned. Additionally, nine consent orders were approved. The FTC is also including prior approval provisions in consent orders across industries, requiring parties seeking to settle merger disputes to agree to provide the FTC with greater rights to reject potential future deals.

The European Commission (Commission) imposed interim measures for the first time in the context of the Commission’s determination that Illumina’s acquisition of GRAIL was premature. The Commission conditionally cleared, in Phase I, Veolia’s acquisition of Suez—a transaction involving two French incumbents in the water and waste sectors—following comprehensive commitments. IAG withdrew from its proposed acquisition of Air Europa following the Commission’s decision not to approve the transaction absent further concessions.

In the United Kingdom, the Competition & Markets Authority (CMA) imposed a record fine of £50.5 million on Facebook for breaching an initial enforcement order related to its acquisition of Giphy, and ultimately required Facebook to sell Giphy. The CMA also updated its merger guidance in parallel with the entry into force of the UK National Security and Investment Act, published a new template for initial enforcement orders and updated its guidance on interim measures.

Access the full issue.




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