Topics covered in this edition:
Vertical mergers are inherently more difficult for the government to litigate than horizonal mergers. After not litigating a vertical merger case since the 1970s, the Federal Trade Commission and the US Department of Justice have recently tried several matters.
In this Westlaw Today article, Jon Dubrow, Stephen Wu, Matt Evola and Bailey Sanders discuss key insights from these cases and provide useful guidance for companies contemplating such transactions.
Last month, the Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) released updated Vertical Merger Guidelines in draft form. These guidelines provide a useful resource for aerospace and defense contractors involved in M&A transactions. Vertical competition issues frequently arise in this industry given the nature of the supply base and contracting and supply relationships between companies operating at different levels of the supply chain.
This is the first time the antitrust agencies have released updated guidelines for analyzing vertical mergers since 1984. Although the agencies have updated the Horizontal Merger Guidelines several times since then (most recently in 2010), they have not provided similar updated guidance to businesses regarding vertical merger enforcement until now. The new guidelines summarize the practices, standards, and theories the agencies have used in evaluating vertical mergers for a number of years. Although the guidelines do not signal any shifts in current agency practice, they do provide the business community greater transparency about how the agencies analyze vertical mergers. This is helpful for the aerospace and defense industry, which is particularly susceptible to vertical competition issues given the heavy reliance on contracting out important elements at different levels of the supply chain.
United States: July – September 2018 Update
Both US antitrust agencies marked the third quarter of 2018 with significant policy announcements regarding the merger review process. The announced reforms seek to expedite the review process through cooperation between the agencies and the merging parties. Moving first, the Federal Trade Commission (FTC) revealed a Model Timing Agreement that provides the FTC Staff with earlier notice of the parties’ intent to substantially comply with a Second Request. Earlier notice allows the FTC Staff to create a more effective timeline for meetings with division management, front office staff and the Commissioners. Less than two months after the FTC revealed its Model Timing Agreement, the Antitrust Division of the US Department of Justice (DOJ) announced procedural reforms aimed at resolving merger investigations within six months of filing. The DOJ will commit to fewer custodians and depositions in exchange for the merging parties providing key information earlier in the investigation. Overall, these reforms appear to be a positive step forward for parties considering future transactions, but their effectiveness remains uncertain as the agencies start a difficult implementation period. While the FTC timing agreement may provide more certainty around the process, it does not reduce the review timing and actually extends it.
EU: July – September 2018 Update
The European Commission (EC) remained quite active clearing mergers in the third quarter of 2018. Most notably, the EC cleared Apple’s acquisition of Shazam without imposing conditions despite the EC’s stated concerns about access to data as a competitive concern. The EC opened a Phase II investigation into the transaction to investigate the potential for Apple to obtain a competitive advantage over competing music streaming services by accessing Shazam’s consumer data obtained through its music recognition services. In this case, the EC did not find evidence that the access to Shazam’s data would provide Apple a competitive advantage. In addition, the EC found that there were no concerns about Apple potentially restricting Shazam as referral source for Apple’s competitors. Going forward, it is clear that access to data is an issue that the EC will continue to investigate, but it is also clear that the EC is taking a careful approach in assessing when that access will truly lead to a competitive harm. (more…)
United States: April – June 2018 Update
The second quarter of 2018 ushered in a trial defeat for the US Department of Justice (DOJ) and the beginning of a new era at the Federal Trade Commission (FTC). In June, Judge Richard J. Leon of the US District Court for the District of Columbia denied the DOJ’s requested injunction of the AT&T/Time Warner acquisition. The case marked the first litigated vertical challenge by the Antitrust Division in nearly 40 years. DOJ filed a notice of appeal of the district court’s decision. At the FTC, four new commissioners were sworn in in May, with a fifth to join upon the approval of current commissioner Maureen Ohlhausen to the US Court of Federal Claims. With the transition nearly complete, new FTC Chairman Joseph Simons announced plans to re-examine and modernize the FTC’s approach to competition and consumer protection laws, possibly charting a new course for FTC antitrust enforcement.
EU: April – June 2018 Update
In this quarter, we saw two significant developments concerning the issue of gun-jumping. First, the Court of Justice of the European Union (CJEU) clarified the scope of the gun-jumping prohibition, ruling that a gun-jumping act can only be regarded as the implementation of a merger if it contributes to a change in control over the target. Second, the European Commission (EC) imposed a €124.5 million fine on Altice for having breached the notification and the standstill obligations enshrined in the EUMR by gun-jumping. The EC also issued two clearance decisions following Phase II investigations in the area of information service activities and the manufacture of basic metals. (more…)
The challenges that the government faces in litigating vertical mergers was illustrated in the DOJ’s recent loss in its challenge of AT&T’s proposed acquisition of Time Warner. The result provides guidance for how companies can improve their odds of obtaining antitrust approval for similar transactions.
United States: January – March 2018 Update
One year into the Trump administration, the US antitrust agencies are finally starting to implement their enforcement policies. Most notably, trial began in the US Department of Justice’s (DOJ) challenge of the AT&T/Time Warner merger, which is the Antitrust Division’s first significant vertical challenge in several decades. Judge Richard J. Leon’s opinion in that case could alter the outlook for several other vertical transactions pending before the agencies. While the DOJ was preparing for trial, the Federal Trade Commission (FTC) was preparing for a transition to five new commissioners, who were approved by the Senate in April. It remains unclear whether the new, Republican-led FTC will be more moderate in its enforcement efforts, similar to prior Republican administrations, or will follow in the footsteps of President Trump’s DOJ, which has been surprisingly aggressive.
EU: January – March 2018 Update
The European Commission (EC) continued to be quite active in the first quarter of 2018, clearing five mergers. The most significant decision was the approval of a megamerger in the agrochemical sector—Bayer/Monsanto—where the parties submitted a remedy package that totalled over €6 billion. This remedy package included divestitures of research and development assets that addressed the EC’s concerns about innovation, similar to the EC’s Dow/DuPont clearance last year. In addition to Bayer/Monsanto, two other proposed acquisitions in the chemicals sectors fell through, most notably Celanese/Blackstone, due to excessive divestiture requests required by the Commission. (more…)
Subscribe
