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Mergers & Acquisitions

ABA Panel Tackles Meeting M&A Client Expectations

by Emily Townsend | Jun 13, 2014 | Mergers & Acquisitions

Recently the American Bar Association Section of International Law in partnership with the International Association of Young Lawyers (AIJA) held a conference entitled “Successful Transactions – What In-House Counsel Expect from their M&A and Antitrust Attorneys.” The conference provided parallel tracks in M&A and Antitrust with the focus of providing attendees a better understanding of issues in-house counsel face during an M&A transaction.

The opening session focused on the importance of project management. The panel consisted of outside counsel, in-house counsel and a consultant. The session started with the notion that clients find that outside counsel generally fall short on project management during M&A transactions. According to the panel, the key to project management is to manage and set realistic client expectations at the outset of any transaction. To provide clients with accurate expectations, outside counsel recommend having a kick-off meeting with the client to discuss the transaction’s structure, the applicable jurisdictions, the regulatory environments and the competitive nature of the industry, and to assess the client’s resources and risk tolerance. The antitrust attorneys also stressed the importance of involving antitrust counsel at the beginning of a transaction. Involving antitrust attorneys early can help most significantly with timing and expense. The most significant example of this is a second request. If antitrust counsel knows the facts of the transaction early he or she can assess the likelihood of the client receiving a second request which can affect cost, timing and ultimately a client’s willingness to continue pursuing the transaction.

To continue to manage the transaction the panel recommended that the lead M&A and antitrust counsel facilitate the following logistical tasks – coordinate efforts to gather and distribute information, set priorities and track work streams, identify and report back to the client on key issues and reevaluate priorities and strategy with clients as the matter develops.

In conclusion, the panel advised attendees that the best way to avoid project management failure is to be organized and communicate with the client and co-counsel. Under that framework the panel recommended that attorneys clearly define the scope of work, establish clear priorities, track the timeline and budget of the transaction, participate in transparent project planning, provide clear and timely reports, and be prepared for forward- looking legal issues like gun-jumping and other transaction-related issues.

Ringing Regulatory Rumors: Deutsche Telekom Purportedly Agrees to Sell T-Mobile US

by Lisa A. Peterson | Jun 2, 2014 | DOJ Developments, Mergers & Acquisitions

Reports circulated out of Japan and Germany late last week indicating Deutsche Telekom AG, owner of T-Mobile US Inc., reached a tentative agreement to sell T-Mobile to Softbank, owner of Sprint Corp. The potential merger of the third and fourth largest wireless carriers has sent rumors of regulatory challenges flying. Other news agencies, like Reuters, have said that crucial details including “price and financing remain to be worked out.” None of the companies, however, have commented on the possible buyout.

Both Deutsche Telekom and Softbank have been frank about their desire to ink a deal. Likewise, leading regulators at the Department of Justice (DOJ) have raised public concerns about the anticompetitive effects of the potential deal. Earlier this year, William Baer, the assistant attorney general for the antitrust division at the DOJ, voiced his opinion that “consumers have benefitted from much more favorable competitive conditions” by having four major players in the wireless carrier industry. As a result, he has expressed hesitation about the DOJ antitrust division’s ability to clear the long-rumored deal, which would create a narrower sector.

Sprint’s chairman, Masayoshi Son, has countered with a public campaign touting the benefits of the tie-up, including creating a more equal competitor to level the playing field with rival behemoths Verizon and AT&T. Son has also encouraged regulators to more broadly consider access to internet, rather than the wireless industry alone. Along those lines, he has made several proposals regarding mobile broadband and promised that with “a three heavy-weight fight” he would engage in “a more massive price war, a technology war.”

Still, industry commentators doubt the ability of the deal to clear regulatory hurdles. Some have pointed to a lack of evidence from Son and Softbank showing that more effective price competition could flourish in a competitive environment with only three major players. Such data is likely crucial to the fate of the tie-up, as a lack of similar data helped bring down AT&T’s prior proposed deal to purchase T-Mobile. Additionally, the deal would require the Federal Communications Commission’s (FCC’s) approval alongside that of the DOJ. Many cite FCC Chairman Tom Wheeler’s cable and wireless industry experience as indicating opposition to the deal.

Reports stated that Deutsche Telekom, which owns a 67 percent stake in T-Mobile, may be interested in keeping a small portion of its ownership interest—perhaps as much as 15 percent—in T-Mobile. If Softbank moves forward, it may face challenges in a bid for T-Mobile, including cable giant Comcast.

German Court Rejects National Competition Authority Liability for Damages After Unlawful Prohibition of a Merger

by Emily Townsend | Mar 27, 2014 | German Developments, Mergers & Acquisitions

The Higher Regional Court in Düsseldorf yesterday dismissed an action for damages of €1.1 billion brought by GN Store Nord against the German Federal Cartel Office. The judgment sheds some light on the possibility for companies to claim damages in the context of an unlawful prohibition of a proposed merger.

Click here to read the full article.

Italian Merger Control Thresholds Update

by Martino Sforza | Mar 14, 2014 | Italian Developments, Mergers & Acquisitions

The Italian Competition Authority has updated its merger control turnover thresholds. Effective from 10 March 2014, Section 16 (1) of Law No 287 of 10 October 1990 requires prior notification of all mergers and acquisitions where:

Aggregate turnover in Italy of all undertakings involved is above EUR 489 million, and
Aggregate turnover in Italy of the target company is above EUR 49 million.

Italy’s merger control thresholds are adjusted annually to take into account increases in the gross domestic product deflator index. The updated thresholds are published in the Authority’s Bulletin once the index is announced officially.

Recently, the Authority launched a consultation on its proposed amendments to the Italian merger control thresholds, namely:

The reduction of the current second merger control threshold
The amendment to the second threshold, whereby it would refer to the turnover of each of at least two of the parties to the transaction (rather than the target’s turnover)

For more information, please contact your regular McDermott Will & Emery lawyer or an author.

Court Orders Divestiture of Consummated Physician Practice Acquisition

by Ashley Fischer | Feb 14, 2014 | Healthcare Antitrust, Mergers & Acquisitions

In a challenge brought both by private plaintiffs and the government, a court has ruled that a health system’s acquisition of a competing physician group practice violated the antitrust laws where the transaction resulted in the health system employing 80 percent of the primary care physicians in one area. Hospitals and health systems pursuing physician practice mergers should carefully consider the implications of this decision on proposed acquisitions and should incorporate antitrust due diligence into their transaction planning.

Click here to read the full article.

Call Waiting: DOJ to Maintain Scrutiny of Wireless Industry Consolidation

by Lisa A. Peterson | Feb 7, 2014 | DOJ Developments, Mergers & Acquisitions

The wireless industry has seen steady consolidation since the late 1980s. Recently, in late 2013, reports began circulating about a potential merger between Sprint and T-Mobile, the nation’s third and fourth-largest wireless carriers, respectively. Last week, however, in an interview with the Wall Street Journal, William Baer, the assistant attorney general for the antitrust division at the Department of Justice (DOJ), cautioned that it would be difficult for the Agency to approve a merger between any of the nation’s top four wireless providers.

T-Mobile’s CEO, John Legere, stated that a merger between his company and Sprint “would provide significant scale and capability.” Baer, on the other hand, warned that “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,” As a result, any future consolidation in the wireless industry is likely to face a huge hurdle in the form of DOJ’s careful scrutiny of any proposed transaction.

Much of the DOJ’s interest in the wireless industry stems from the Agency’s successful challenge of a proposed merger between T-Mobile and AT&T in 2011. Since then, Baer believes consumers have benefitted from “much more favorable competitive conditions.” In fact, T-Mobile gained 4.4 million customers in 2013, bringing optimism to the company’s financial outlook after years of losses. In the final two quarters of 2013, T-Mobile’s growth bested that of both Sprint and AT&T. The low-cost carrier attracted customers and shook up the competition by upending many of the terms consumers had come to expect from wireless carriers, as well as investing in network modernization and spectrum acquisition. This flurry of activity has pushed the competition to respond with its own deals, resulting in “tangible consumer benefits of antitrust enforcement,” according to Baer.

The DOJ’s antitrust division has kept careful watch over the wireless industry the past few years. That scrutiny will remain, as the Agency persists to advocate that four wireless carriers are required for healthy market competition. The cards are beginning to play out from the Agency’s decision, and as Baer stated, “competition today is driving enormous benefits in the direction of the American consumer.”

Federal Trade Commission Announces Revised, Higher Pre-merger Filing Thresholds

by Emily Townsend | Jan 21, 2014 | FTC Developments, Mergers & Acquisitions

On January 17, 2014, the Federal Trade Commission (FTC) announced revised, higher Hart-Scott-Rodino (HSR) pre-merger notification filing thresholds. The FTC adjusts the HSR thresholds annually to represent the increase or decrease in GNP. These revised thresholds will become effective 30 days from the date on which notice is published in the Federal Register, which should occur within the next week. As such, we expect that these new thresholds will become effective by late February. Once we know the precise effective date for these adjusted thresholds, we will publish an On The Subject that can be distributed to clients. Clients with transactions pending may benefit from the higher threshold if the transaction closes on or after the effective date and ultimately falls below the revised threshold.

Most notably, the size-of-transaction threshold, which frequently determines whether a transaction requires an HSR notification, will increase from $70.9 million to $75.9 million. Other thresholds will increase as well, including thresholds for the size-of-person test, filing fees and certain exemptions. The revised thresholds are as follows:

Original Threshold

2014 Adjusted Threshold

$10 million $15.2 million $50 million $75.9 million $100 million $151.7 million $110 million $166.9 million $200 million $303.4 million $500 million $758.6 million

Generally, a transaction requires an HSR notification if it meets the applicable size-of-transaction and/or the size-of-person tests, described briefly below, and does not fall within any exemptions.

A transaction meets the size-of-transaction test if, as a result of the transaction, the acquiring party holds assets, voting securities or a controlling interest in a non-corporate entity valued in excess of

$50 million, as adjusted ($75.9 million upon the effective date of these revised thresholds), assuming the size-of-person test is met, or
$200 million, as adjusted ($303.4 million upon the effective date of these revised thresholds) — this threshold applies to transactions even if the size-of-person test below is not met.

For the size-of-person test, upon the effective date of these revised thresholds, a transaction resulting in the acquiring party holding assets, voting securities or a controlling interest in a non-corporate entity valued at $75.9 million or more, but less than $303.4 million, is generally reportable if one party has net sales or total assets of at least $10 million, as adjusted ($15.2 million upon the effective date of these revised thresholds), and the other party has net sales or total assets of at least $100 million, as adjusted ($151.7 million upon the effective date of these revised thresholds).

Although the filing fees for HSR notifications will not change at this time (although this is something currently under review), the thresholds (based upon the size-of-transaction) that determine the correct filing fee will also adjust:

Filing Fee

Size-of-Transaction

$45,000 $75.9 million, but less than $151.7 million $125,000 $151.7 million, but less than $758.6 million $280,000 $758.6 million or more

Again, these revised thresholds will become effective 30 days after publication of notice in the Federal Register.

Judge Rules in Favor of DOJ Finding Bazaarvoice/PowerReviews Merger Anticompetitive

by McDermott Will & Emery | Jan 13, 2014 | DOJ Developments, Mergers & Acquisitions

On January 8, 2014, Judge Orrick of the Northern District of California ruled that Bazaarvoice’s acquisition of competitor PowerReviews violated Section 7 of the Clayton Act. The ruling was in favor of the U.S. Department of Justice (DOJ). The public version of the opinion was made available on January 10. In its self-described “necessarily lengthy opinion,” which spans 141 pages, the court ultimately found that the facts overwhelmingly showed the acquisition will have anticompetitive effects and that Bazaarvoice did not overcome the government’s prima facie case. The case included 40 witnesses at trial, more than 100 depositions and 980 exhibits. Dr. Carl Shapiro testified as DOJ’s economist and Dr. Ramsey Shehadeh testified on behalf of Bazaarvoice/PowerReviews. The court noted that the case presented some difficult issues, including that there were no generally accepted “market share statistics covering the sales of R&R solutions or social commerce solutions and no perfect way to measure market shares.” And while neither side presented flawless analyses, the court found Dr. Shapiro’s approaches more persuasive than those of Dr. Shehadeh.

Bazaarvoice and PowerReviews each offered sophisticated “R&R platforms.” R&R platforms provide a user interface and review form for the collection and display of user-generated content (i.e., user reviews) on the product page of a commercial website where the product can be purchased. Often these are in the form of star ratings and open-ended reviews in a text box. R&R platforms increase sales for the retailer and have a variety of different features. The court noted that many on-ine retailers view an R&R platform as “necessary.” Before the merger, Bazaarvoice and PowerReviews offered similar products and features and targeted similar customers.

The court found that the relevant product market was the narrow “R&R platforms,” rather than the broader “social commerce tools” or “eCommerce platforms.” The court went through many popular social media platforms such as Facebook, Google+, Twitter, Instagram, and Pinterest, explaining why each was not a substitute for these R&R platforms. In this relevant market, the court found that PowerReviews was Bazaarvoice’s only real competitor, and thus the merger “would eliminate Bazaarvoice’s only meaningful commercial competitor.”

At the end of the opinion, the court commented on the role of antitrust “in rapidly changing high-tech markets.” It noted that there is a debate as to whether antitrust is properly suited to assess competitive effects in these markets. The court declined to take sides and stated that its “mission is to assess the alleged antitrust violations presented, irrespective of the dynamism of the market at issue.”

The case now moves to the remedy phase. In its complaint, the DOJ requested that the court order Bazaarvoice to divest assets originally possessed by either Bazaarvoice and/or PowerReviews to create a viable, competing business. However, as Judge Orrick noted, 18 months after the merger, it may not be so simple to divest assets. The judge scheduled a conference for January 22 with the parties to discuss a possible remedy.

There are several lessons to be gathered from this case. First, the [...]

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Court Certifies Class in Hospital Merger Antitrust Lawsuit

by Emily Townsend | Dec 19, 2013 | Mergers & Acquisitions, Monopolization/Abuse of Dominance, Private Litigation

On December 10, 2013, Judge Edmond Chang of the Northern District of Illinois certified a class of plaintiffs who filed a proposed class action against NorthShore University Health System (formerly Evanston Northwestern Healthcare) on behalf of all end-payors who purchased inpatient and outpatient healthcare services directly from NorthShore.

In 2000, Evanston Northwestern acquired rival Highland Park Hospital. The FTC successfully challenged the consummated merger in 2004, but did not order divestiture because the hospitals had already been merged and was functioning as a single entity for several years. After the FTC’s decision, the plaintiffs brought their class action, alleging that NorthShore illegally monopolized the market and caused the plaintiffs and the putative class to pay artificially inflated prices for healthcare services.

A previously assigned judge denied the plaintiffs’ motion for class certification, holding that the plaintiffs had failed to satisfy the Rule 23(b)(3) “predominance” prerequisite to class certification – i.e., that there are questions of law or fact common to class members that predominate. Fed. R. Civ. P. 23(b). On interlocutory appeal, the Seventh Circuit held that the plaintiffs did satisfy predominance, then vacated the district court’s order and remanded.

On remand, Judge Chang held that the only remaining issue as to class certification was whether the plaintiffs had satisfied the Rule 23(b)(3) “superiority” prerequisite to class certification, i.e., that a class action must be “superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). NorthShore argued that the plaintiffs failed to satisfy the superiority prerequisite because: 1) arbitration is superior to class action litigation (with respect to the payors who NorthShore alleged are bound by arbitration provisions in the payor contracts); 2) managed care organizations have an interest in individually controlling any claim against NorthShore; and 3) class certification would be unmanageable because a trial would require “hundreds of mini-trials analyzing many individual [NorthShore contracts with payors]”. Judge Chang disagreed, finding, among other things, that the parties disagreed as to whether all of NorthShore’s contracts with payors even contained arbitration provisions. Moreover, Judge Chang noted that the payors had not yet taken a position as to whether they wanted to exercise their individual right to control the litigation, despite ample opportunity to do so. Finally, Judge Chang commented that the “Seventh Circuit credited the ability of the plaintiffs’ expert . . . to use common evidence to show that all of the class members suffered some antitrust impact,” which would eliminate the need for hundreds of mini-trials on liability. Accordingly, Judge Chang found that the plaintiffs had satisfied the superiority prerequisite and certified the class.

This is a unique case because most hospital mergers are challenged pre-consummation, where an injunction is the only remedy available to plaintiffs. In fact, this is the first private antitrust class action related to a hospital merger.

European Commission Simplifies Aspects of EU Merger Control

by McDermott Will & Emery | Dec 10, 2013 | EC Developments, Mergers & Acquisitions

The European Commission (Commission) has issued a package of measures (the Reform Package), the rationale for which is to simplify and streamline EU merger control. The Reform Package does this by extending “simplified” treatment to more transactions, reducing the information that parties to a notifiable transaction have to submit and streamlining the pre-notification process. The reforms take effect on 1 January 2014.

The overall objective of the Reform Package is to make EU merger procedures simpler and more business friendly. But it may actually introduce additional work for some types of transactions, for instance by introducing new categories of information that parties to a notifiable transaction must be prepared to supply.

The Reform Package

The Reform Package is comprised of a revised Merger Implementing Regulation, a Notice on Simplified Procedures and revised notification forms, namely a revised Form CO, a revised Short Form CO and a revised Form RS.

The main features of the Reform Package are as follows.

Extension of the Simplified Procedure

At present, transactions that do not present competition concerns are eligible for simplified treatment. Parties to these transactions are entitled to use the Short Form CO, which requires less information and generally requires less time because a market investigation is not necessary.

The Reform Package expands the simplified procedure to apply it to more transactions. Specifically:

In markets in which two merging companies compete (horizontal overlap), the simplified procedure applies to mergers below a 20 per cent combined market share, instead of 15 per cent currently.
In mergers where one of the companies sells an input to a market where the other company is active (vertically-related markets), the simplified procedure applies to mergers below a 30 per cent combined market share, instead of 25 per cent currently.
Provided that the increase in market shares is small, i.e., a Herfindahl–Hirschman Index increase of 150 or less, the simplified procedure applies where the parties’ combined market shares are between 20 per cent and 50 per cent.

The Commission estimates that, under the Reform Procedure, between 60 and 70 per cent of notifiable transactions will be eligible for simplified treatment, representing a 10 per cent increase over current levels.

Information Requirements

The Reform Package introduces several changes in respect of the provision of information in connection with EU merger procedures. Some of these changes will reduce the overall amount of information that parties to notifiable transactions will have to provide to the Commission.

More transactions eligible for simplified treatment. As the Reform Package makes more transactions eligible for simplified treatment, it follows that parties to those transactions will need to provide less information in connection with their merger procedure.
Waivers for certain information. The Reform Package envisages that parties using either the Form CO or the Short Form CO will also need to provide less information, but this will largely remain within the discretion of the Commission case team reviewing the transaction. Specifically, under the Revised Package, parties will have greater likelihood of being relieved from [...]

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