United States
In 2011, we saw a resurgence in antitrust challenges to mergers by
the U.S. Department of Justice’s Antitrust Division (Antitrust Division)
and the Federal Trade Commission (FTC). The Antitrust Division sought
to enjoin transactions such as Verifone’s proposed acquisition of
Hypercom (parties agreed to divestiture to settle litigation), Nasdaq
OMX and the IntercontinentalExchange’s proposed acquisition of NYSE
Euronext (parties abandoned the transaction), H&R Block’s proposed
acquisition of TaxACT (Antitrust Division prevailed after full trial on
the merits), and AT&T’s proposed (and later abandoned) acquisition
of T-Mobile. Similarly, the FTC litigated and lost a federal court
challenge to Labcorp’s consummated acquisition of Westcliff and lost its
appeal in the Ovation Pharmaceuticals matter, where the FTC also
litigated and lost a federal court challenge to a consummated
acquisition.
From a practitioner’s perspective, industry structure remains a
critical starting point for merger analysis. Each of these challenges
involved markets that the antitrust agencies alleged were highly
concentrated, and descriptions in the merging parties’ business and
strategic planning documents frequently were cited as evidence
supporting the agencies’ views of market structure. In addition, the
antitrust agencies (especially the Antitrust Division) have shown a
willingness to “fast track” problematic transactions for litigation
without the need for a prolonged review. For example, in the NYSE
matter, the parties announced the proposed merger on April 1, 2011, and
the Antitrust Division announced its intention to enjoin the transaction
only six weeks later and without the voluminous documents and data
required by the Second Request process. Finally, the health care
industry continues to be a primary focus for the FTC, with all health
care mergers — including those for which Hart-Scott-Rodino (HSR) filings
are not required — typically receiving heightened antitrust scrutiny.
We expect these trends to continue, irrespective of the outcome of the
2012 election.
Last year we also saw the first substantial revisions to the HSR
premerger filing form in nearly a decade. The most significant of the
revisions eliminate or reduce, generally, the information and documents
to be provided, but also require new, detailed information about (i)
ex-U.S. manufacturing operations and (ii) “associates” of the acquiring
filing person and their holdings, as well as the production of a new
category of documents, called “4(d) documents,” that include synergies
and efficiencies analyses. The new rules remain subject to ongoing
clarification, and we will continue to alert clients when the premerger
office provides guidance as to the scope and interpretation of the
rules. In practice, the new HSR rules have had limited impact on filing
parties, except for those with international manufacturing operations,
which must now itemize their overseas products and related U.S.
revenues, and private equity firms or master limited partnership
buyers, which must now account for associates’ holdings.
Finally, the Antitrust Division issued a revised Policy Guide to
Merger Remedies (Remedies Guidelines) earlier this year. The new
Remedies Guidelines restate much of the Antitrust Division’s precedents
for devising, implementing and enforcing remedy provisions and consent
decrees in the merger context. Released in part to highlight the
Antitrust Division’s approach to vertical transactions, which received
significant attention following Comcast’s acquisition of NBC Universal
and Ticketmaster’s merger with Live Nation, the Remedies Guidelines do
not reflect a sharp change in the Antitrust Division’s policies. Rather,
they highlight the greater flexibility and willingness on the part of
the Antitrust Division to accept conduct, as opposed to structural,
remedies, particularly in connection with vertical mergers.
European Union
There have been no significant changes in terms of merger enforcement
in the EU in 2011, which is now a “well-oiled machine” in Commissioner
Joaquín Almunia’s own words. Indeed, March 2011 marked two decades of
enforcement of the EU Merger Regulation (EUMR), during which the
European Commission (EC) reviewed 4,500 mergers and approved
approximately 90 percent of them unconditionally.
Despite the fact that merger notifications increased slightly
compared to 2010, last year was characterized by the deepening of the
sovereign debt crisis and resulting recession in many EU countries.
However, the crisis has not resulted in more lenient merger enforcement
by the EC. This is evidenced by the prohibition of the Olympic Air/Aegean Airlines merger (M.5830)
on the grounds that it would eliminate competition in many domestic air
transport routes in Greece, the EU country at the epicenter of the EU
financial crisis. As Commissioner Almunia has stated, the EC views
effective merger control as a requirement for Europe to compete
effectively in a globalized world economy, especially in times of
recession.
In 2010, there was a lot of debate about whether the Upward Pricing
Pressure (UPP) test introduced by the U.S. Horizontal Merger Guidelines
would dispense with the need to define markets in the EU. The EC’s
practice since then shows that market definition will remain the
starting point for merger analysis in the EU, and that UPP, along with
other econometric tools, will complement rather than replace market
definition. The Unilever/Sara Lee Body Care decision (M.5658) is
an illustration of this approach. In that case, the EC defined markets
and subsequently, through the use of econometric models and other
evidence, concluded that the merger would result in a price increase
because some of the brands involved were close competitors. As a result,
the EC required the divestiture of one of the brands in order to clear
the merger. This approach is consistent with the U.S. approach, where
industry structure remains a critical starting point for merger
analysis.
On the remedies front, the EC has developed its practice of accepting
nonstructural remedies to address foreclosure and interoperability
concerns in nonhorizontal merger cases, even in Phase I, without a
protracted Phase II investigation. In Intel/McAfee (M.5984), the
EC had concerns that Intel, after its acquisition of McAfee, would
foreclose security solutions and CPU/chipset competitors through
technical tying and/or degradation or refusal of interoperability, given
Intel’s position in CPUs/chipsets. To address these concerns, the EC
accepted essentially interoperability commitments by Intel (i) to
provide access to all necessary interoperability information for Intel’s
CPUs/chipsets, (ii) not to impede the operation of competing security
solutions from running on Intel CPUs and chipsets, and (iii) to avoid
hampering the operation of McAfee’s security solutions when running on
PCs containing CPUs or chipsets sold by Intel’s competitors.
Despite the mature state of EUMR enforcement on the substantive
front, there are still procedural issues that could affect both the
timing and substance of merger review under the EUMR.
The EC’s assessment of two parallel mergers in the hard disk drive
(HDD) sector raised questions about the EC’s “priority rule,” a practice
that it developed for parallel merger investigations. The mergers in
question were Western Digital/Hitachi (M.6203) and Seagate Technology/Samsung Electronics
(M.6214) (the WD merger and Seagate merger, respectively). The WD
merger was announced on March 7, 2011, while the Seagate merger was
announced on April 19, 2011. However, the Seagate merger was formally
notified one day before the WD merger. As a result of the priority rule,
which is based on a “first-come, first-served” approach, the EC
assessed the Seagate merger as if the WD merger had not yet occurred,
while the WD merger was assessed as if the subsequent Seagate merger
already had occurred and Seagate/Samsung were a single entity. The
strict application of the priority rule had a concrete impact, given
that the WD merger was no longer assessed as a “4 to 3” deal, but
instead as a “3 to 2” deal in certain HDD markets, and led to the
imposition of remedies for the WD merger. In contrast, the
Seagate/Samsung deal was assessed as a “4 to 3” deal and cleared
unconditionally. The priority rule is under appeal before the European
General Court by Western Digital, but in its current state, it
complicates the antitrust risk assessment in M&A transactions that
occur in oligopolistic markets with high barriers to entry.
Another procedural issue relates to transactions that do not
automatically trigger the EUMR thresholds. Three of the nine Phase II
decisions this year involved cases that did not trigger the EUMR
thresholds but which were referred to the EC under Article 22 of the
EUMR. Two of these decisions either resulted in significant commitments (Sygenta/Monstanto Sunflower Seed, M.5675) or were abandoned (SC Johnson/Sara Lee Household Insect Control Business, M.5669).
The increased tendency of national competition authorities in the EU to
refer cases to the EC, including authorities that did not originally
have jurisdiction to review the deal, is a key parameter that could
affect both the timing and substantive assessment of strategic M&A.
China, Brazil and India
China. 2011 was the third full year of enforcement by China’s
Ministry of Commerce (MOFCOM) of the Chinese Antimonopoly Law (AML).
MOFCOM has continued to vigorously enforce the AML and establish its
presence as one of the “gateway” competition authorities for global
M&A transactions.
MOFCOM has increased its clout by taking enforcement action for the
first time against a transaction involving a Chinese State Owned
Enterprise (SOE). On November 10, 2011, MOFCOM imposed remedies for the
establishment of a joint venture between General Electric and Shenhua (a
Chinese mining/energy SOE), to license coal-water slurry gasification
technology to industrial and power projects in China. MOFCOM cleared the
joint venture subject to commitments by Shenhua not to compel licensees
of competing gasification technologies to use GE/Shenhua’s technology.
On August 29, 2011, MOFCOM adopted Provisional Rules for Assessing the Competitive Effects of Undertakings, which lays out basic principles for MOFCOM substantive merger review that reflect MOFCOM’s experience so far.
However, despite the progress made on the substantive front, the
MOFCOM merger review process remains very lengthy, even for transactions
raising insignificant merits issues. The vast majority of the notified
transactions in 2011 led to Phase II investigations because of the
lengthy decision-making process, which involves interagency
consultations with many other Chinese government agencies.
Brazil. The new Brazilian Competition Law (Law No. 12529) was
adopted on November 30, 2011, and will enter into force on May 28, 2012.
The new law will include, among other things, a bar on closing that
will prevent the parties from closing a transaction before a clearance
is issued. This will be a major change compared to the current system,
which does not have an automatic bar on closing, and would put Brazil on
the map as one of the key jurisdictions that could affect the timing of
global M&A deals.
India. The Competition Bill of 2007, which amends the
Competition Act, 2002, introduced a mandatory preclosing filing system
that also applies to M&A transactions that do not involve Indian
companies. The new regime entered into effect as of June 1, 2011.
However, the number of Indian merger notifications triggered from global
M&A transactions under the new regime is less significant than
originally anticipated, due to a transitory de minimis exception that exempts transactions where the target company has Indian turnover or assets below certain thresholds.
Consultation Paper