At the one year anniversary of the Trump administration, antitrust merger enforcement remains similar to the Obama administration, but it is still early to judge given the delays in antitrust appointments and given the DOJ’s lawsuit against the vertical AT&T/Time Warner transaction, the first vertical merger litigation in decades. Below are some of the recent developments that have impacted merger enforcement by the Federal Trade Commission (FTC) and Antitrust Division of the US Department of Justice (DOJ), as well as European regulators.
THE LATEST: Behavioral Remedy Satisfies European Commission in Rolls-Royce’s €720M Agreement to Purchase the Rest of ITP
- Rolls-Royce and SENER have a 47 percent/53 percent joint-venture in Industrial de Turbo Propulsores (ITP)–an aircraft engine components manufacturer.
- Rolls-Royce supplies the engine for Lockheed Martin’s C-130J (turboprop military transport aircraft).
- Rolls-Royce, together with ITP, MTU and Safran, are members of a military engine consortium–Europrop International (EPI)–that supplies the engine to the Airbus’ A400M, the primary competitor to the Lockheed Martin C-130J.
- The European Commission (EC) had concerns that Rolls-Royce’s full ownership of ITP would increase its influence in EPI such that Rolls-Royce could undercut the competitiveness of the EPI engine, and consequently subvert Airbus’ competitiveness vis-à-vis Lockheed Martin.
- The EC and Rolls-Royce agreed to a behavioral remedy focused on EPI’s governance rules that would eliminate the potential conflict of interest and maintain EPI’s competitiveness. While the EC press release does not provide details, the agreement likely allows MTU and Safran to control the consortium’s decision making.
- Antitrust enforcers continue to investigate competitive impacts from vertical transactions.
- While antitrust enforcers have a strong preference for structural remedies, when addressing vertical competition issues, there is greater potential that enforcers will accept a behavioral fix.
- Antitrust enforcers continue to focus on antitrust impacts in narrow markets. Here, the remedy is designed to maintain competition between the Airbus A400M and Lockheed Martin’s C-130J – military turboprop transport aircraft.
THE LATEST: FTC Determines Behavioral Remedies are Sufficient to Fix Offshore Natural Gas Pipeline Overlap
The Federal Trade Commission (FTC) recently granted US antitrust clearance for Enbridge’s acquisition of Spectra after the parties agreed to behavioral commitments to remedy an overlap for natural gas pipeline transportation from the wellhead in three markets off the coast of Louisiana (Green Canyon, Walker Ridge and Keathley Canyon).WHAT HAPPENED:
- The merging parties each own interests in competing natural gas pipelines – Enbridge is the sole owner of the Walker Ridge Pipeline; and Spectra holds a minority interest (~7.6%) in the Discovery Pipeline via its interests in DCP Midstream.
- As part of Spectra’s minority interest in the Discovery Pipeline, Spectra had access to detailed information on the pipeline’s pricing and other competitively sensitive information. In addition, Spectra had board voting rights over the pipeline’s significant capital expenditures including expansions needed to connect to new wells.
- FTC determined that in certain areas within each of the three geographic markets, the Walker Ridge and Discovery Pipeline were the closest pipelines to new wellheads in development and therefore the lowest priced options.
- In granting antitrust clearance, the FTC required that Enbridge and Spectra erect firewalls such that information related to the Walker Ridge Pipeline would not be shared with any of Spectra’s partners in the Discovery Pipeline and that Discovery Pipeline information is not shared with any Enbridge individuals involved in the Walker Ridge Pipeline business.
- The FTC also required any board members appointed by Enbridge or Spectra to DCP Midstream recuse themselves from any vote pertaining to the Discovery Pipeline, unless the vote involves expanding the Discovery Pipeline beyond natural gas pipeline services in the Gulf of Mexico or changing the entities’ ownership interests in the Discovery Pipeline.
- FTC could investigate and require remedies in overlaps involving minority ownership interests (even when less than 10%), particularly when the overlapping entities are close competitors and the acquisition would give access to competitively sensitive information and control over the entity.
- The FTC continues to apply narrow product and geographic market definitions in oil and gas cases. Here the FTC alleged relevant markets involving natural gas pipeline transportation in particular areas in the Gulf of Mexico.
- While the FTC has stated a strong preference for structural remedies when fixing horizontal overlaps, there are situations in which the FTC will conclude that a behavioral remedy is sufficient.
Compliance with EU and national antitrust merger control rules can significantly impact the feasibility, timing and costs of M&A transactions. Parties to a proposed transaction in the EU should assess the merger control issues early in the process and evaluate and comply with any procedural antitrust requirements to avoid unnecessary delay, or even civil or criminal penalties, in any EU transactions.
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The DOJ has released an updated merger remedies guide that provides an overview on how the DOJ Antitrust Division staff will analyze proposed remedies in merger matters. The revised guide places an increased emphasis on behavioral or conduct remedies to address issues raised by vertical transactions.
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