The US Department of Justice’s and the Federal Trade Commission’s losses in three merger challenges in September and a fourth in October demonstrate that merging parties can close difficult transactions if willing to fight the agencies in court. In this Law360 article, McDermott’s Jon B. Dubrow, Joel R. Grosberg and Matt Evola discuss these four cases and what they mean for merging parties.
DOJ to Merging Parties: The Time of “Underenforcement” is Over; Fix-It-First or Risk Being Challenged
During a conference last week, Ryan Danks, Director of Civil Enforcement at the US Department of Justice’s Antitrust Division (DOJ), suggested that merging parties—not the antitrust enforcement agencies—should devise fixes for allegedly anticompetitive transactions.
Danks stated “that something is broken about the way that the antitrust community talks about remedies in the context of mergers, where parties will bring in a three-to-two or four-to-three or even a two-to-one [transactions] and say ‘now we want you, government, to work with us to figure out how to fix this’ . . . that’s not our job. Our job is to maintain competition.”
Danks added that merging parties bear the responsibility for remedying their anticompetitive transactions and have more information on the businesses, allowing them to formulate strong solutions. Such “fix-it-first” approaches may allow merging parties to complete their transactions quicker, avoiding lengthy merger reviews and consent decree negotiations.
Danks also suggested that “the simplest remedy . . . is to just stop an anticompetitive transaction from occurring,” strongly hinting that today’s DOJ would rather challenge an entire transaction than work with the parties on devising a remedy to address specific competitive concerns in limited product or geographic markets.
Jonathan Kanter, Assistant Attorney General for the Antitrust Division, conveyed similar views in two speeches last week, making it clear that merger enforcement at the DOJ will become even more vigorous.
On September 13, 2022, Kanter:
- Warned that “[c]ompanies considering mergers that may harm competition should know that the Antitrust Division will not back down from a fight so long as that threat remains.”
- Emphasized that the Clayton Act’s “expansive definition of antitrust liability” requires the government only to prove that a transaction’s effect “may be substantially to lessen competition.” According to Kanter, antitrust agencies have, for too long, “underenforced a statute that was meant to be prophylactic” by focusing on concrete evidence of a merger’s effect on prices.
On September 16, 2022, Kanter said that antitrust enforcers “can no longer be so cautious to avoid overenforcement that [they] intentionally underenforce the law.”
Moving away from negotiating settlements that allow transactions to proceed while resolving anticompetitive issues is part of a trend of dramatic policy and procedural changes at both the DOJ and Federal Trade Commission (FTC) designed to discourage mergers and acquisitions (M&A), such as:
- Suspending early termination of the Hart-Scott-Rodino Act (HSR) waiting period for transactions that do not raise competitive issues
- Sending merging parties “close at your own risk” letters, informing the parties that antitrust investigations are ongoing despite expiration of the HSR waiting period
- Insisting on inclusion of prior approval/prior notice provisions in all merger settlements
- Including new topics, such as the impact on labor and environment, in Second Requests and adding additional hurdles to modifying Second Requests.
WHAT THIS MEANS FOR MERGING PARTIES
Merging parties should increasingly consider resolving likely competitive issues with their transaction before the antitrust [...]
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.
- 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.
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). (more…)
by Philipp Werner and Christoph Voelk
The European Commission started a public consultation on a draft document which seeks to establish best practices on cooperation between national competition authorities (NCAs) in the EU when reviewing mergers. Although cooperation between NCAs exists already, especially through the European Competition Network (ECN), the best practices seek to formalize the cooperation between NCAs and thus providing more security and predictability for the parties and their legal advisers.
The best practices should enhance cooperation between NCAs in cases where the same merger is assessed by several NCAs because it does not meet the thresholds for review under the EU Merger Regulation. The Commission considers cooperation between NCAs as beneficial not only for the authorities but also for the merging parties: it will speed up the investigation process, reduce burdens on the merging parties and may help NCAs in designing remedies. Particularly in cases where serious concerns about the post merger situation exist, close cooperation between competition authorities will secure a non-conflicting and coherent outcome.
The object of the Commission’s draft is twofold:
First, NCAs should keep each other informed of important developments related to their investigation into the merger. Also, NCAs should liaise in cases where closer cooperation is necessary and keep each other informed about their progress. Most importantly, the Commission proposes that NCAs should in future discuss market definition, theories of harm, empirical evidence and the possible impact of a proposed merger.
Second, the draft also assigns a role to the merging parties. Merging parties should, as far as possible, provide NCAs with information as to where the merger will be filed, the dates of the proposed filing, geographic areas, sectors involved etc. Also, merging parties should assist in ensuring that remedies do not lead to inconsistencies and that such remedies are effective. Of importance is further the proposal that the merging parties, but also third parties, shall – as far as possible – grant waivers of confidentiality so that NCAs actually are permitted to discuss particular issues of a proposed transaction.
Comments on the Commission’s draft can be submitted until 27 May 2011 to email@example.com.
The consultation page can be accessed via https://ec.europa.eu/competition/consultations/2011_merger_best_practices/index_en.html