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Jun

20

Buyer Beware: Consummating Non-HSR Reportable Mergers May Prove Costly In The End

Posted by : Matthew Wild | On : June 20, 2014

Category: Antitrust, Government Investigations, Mergers and Acquisitions, U.S. Department of Justice (Antitrust Division)

A recent speech by Deputy Assistant Attorney General Leslie Overton emphasized the risk in consummating mergers that do not have to be reported under the HSR Act, but have (or may have) adverse effects on competition.  Ms. Overton emphasized that the Antitrust Division devotes substantial resources to, and challenges, non-reportable mergers.  The Antitrust Division learns about non-reportable mergers from a number of sources, including customers, industry contacts and trade publications.  A successful government challenge to a merger can have drastic consequences for the buyer.  The remedy is generally divestiture of key assets and not rescission.  The buyer may have paid substantial money for these assets, but will lose them without receiving much value.  In addition, any profits earned because of adverse effects of competition are subject to disgorgement.  And perhaps most significantly, the buyer and the seller can be sued for treble damages in class actions brought by injured customers.  In an article entitled Buyer Beware: Consummating Non-HSR Reportable Mergers May Prove Costly In The End, published by the ABA Antitrust Litigator, the author herein discusses these risks.  In sum, parties to non-reportable transactions face significant risks if they consummate an anti-competitive merger.

Author: Matthew S. Wild (Wild Law Group PLLC)

Jan

14

AT&T Settles Civil Contempt Claim with the DOJ for $2 Million

Posted by : Matthew Wild | On : January 14, 2009

Category: Antitrust, Consent Decrees, Government Investigations, Mergers and Acquisitions, U.S. Department of Justice (Antitrust Division)

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AT&T settled a civil contempt claim with the DOJ in connection with its failure to comply with the divestiture requirements in a consent decree governing its acquisition of Dobson Communications Corporation.  In particular, AT&T failed to keep confidential customer information relating to the businesses that had to be divested.  The Antitrust Division’s press release appears below:

WASHINGTON — AT&T Inc. has agreed to pay more than $2 million as part of a civil settlement with the Department of Justice that resolves AT&T’s alleged violations of two court orders entered in connection with AT&T’s acquisition of Dobson Communications Corporation.

The Department today filed a petition in the U.S. District Court for the District of Columbia asking it to find AT&T in civil contempt of a 2008 consent decree and a related court order. At the same time, the Department filed a settlement agreement and order, subject to court approval, that would resolve the Department’s concerns. The payment to the United States includes reimbursement to the government for the cost of its investigation into AT&T’s alleged violations.

“It is imperative that companies fully abide by their court-ordered obligations in order for our settlements to be effective in preserving competition and protecting consumers,” said Deborah A. Garza, Acting Assistant Attorney General in charge of the Department’s Antitrust Division. “When companies fail to comply with a court order, the Antitrust Division will take swift and certain action to ensure that companies fulfill their responsibilities.”

Under the consent decree entered by the court in March 2008, AT&T was required to divest mobile wireless telecommunications businesses in three rural service areas (RSAs)  two in Kentucky and one in Oklahoma. Pending divestiture, a management trustee was appointed to oversee the businesses to be divested. Under the consent decree and a related court order, AT&T was required to take all steps necessary to ensure that the divested businesses were operated independently of AT&T and that AT&T did not influence how they were managed. AT&T was also required to take all reasonable efforts to preserve the confidentiality of information material to the operation of the divested businesses and not give unauthorized personnel access to such information.

According to the petition filed by the Department, AT&T failed to fulfill its obligations under the two court orders. The petition alleges that AT&T failed to separate confidential customer account information of the divested businesses from its own customer records and to take other actions needed to prevent unauthorized disclosure. Consequently, AT&T personnel obtained unauthorized access to the divested businesses’ competitively sensitive customer information and in some situations used it to solicit and win away the divested businesses’ customers. The petition further alleges that AT&T, without authorization by the management trustee, waived early termination fees for several customers of the divested businesses to facilitate switching their wireless service from the divested businesses to AT&T.

Jan

13

FTC Seeks Hold Separate Order on Remand Against Whole Foods

Posted by : Matthew Wild | On : January 13, 2009

Category: Antitrust, FTC Actions, Mergers and Acquisitions, Section 7 (Clayton Act)

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On January 12, 2009, the FTC sought a hold separate order against Whole Foods on remand from the D.C. Circuit’s reversal of the lower court’s denial of a preliminary injunction.  During the pendency of its administrative proceeding, the FTC seeks an order that enjoins Whole Foods from further integration of Wild Oats’ assets, rebranding of former Wild Oats stores and appointment of an independent trustee and management team to run the former Wild Oats stores. (Whole Foods Remand)   It is questionable whether such relief would be effective to restore competition if for example, Wild Oats lost key employees, a loyal customer base and a distribution network.  Prior coverage of the Whole Foods litigation appears on the July 29, 2008, December 1, 2008 and December 11, 2008 Posts.  This remand proposal is likely to spark Whole Foods to seek expedited relief in its lawsuit against the FTC challenging the fairness and integrity of the FTC’s administrative process.  (See December 11, 2008 Post)  On December 12, 2008, the FTC has moved to dismiss the Complaint in that action contending that only a U.S. Court of Appeals has subject matter jurisdiction because Congress only granted those courts the power to review the FTC’s actions.  (FTC Motion to Dismiss)

Dec

01

Whole Food’s Denied Rehearing But D.C. Circuit Amends Its Earlier Decision

Posted by : Matthew Wild | On : December 1, 2008

Category: Antitrust, FTC Actions, HSR Review, Mergers and Acquisitions, Section 7 (Clayton Act)

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On November 21, 2008, the United States Court of Appeals for the D.C. Circuit denied rehearing and rehearing en banc in FTC v. Whole Foods with Judge Kavanaugh dissenting.  Judge Kavanaugh had dissenting in the original decision.  The original opinion is linked to the July 29, 2008 Post, which also analyzes it.  On November 21, the court also issued a revised and amended decision.  The revision and amended decision is particularly interesting because it clarifies that Judge Tatel concurred only in the judgment and not in Judge Brown’s opinion.  (Whole Food’s Amended Decision )  As a result, it has become clear that Judge Brown’s opinion has no binding affect on the rest of the Court.  Judges Ginsburg and Sentelle voted against rehearing en banc “because, there being no opinion for the Court, that judgment sets no precedent beyond the precise facts of this case. See King v. Palmer, 950 F.2d 771, 783 (D.C. Cir. 1991) (en banc) (‘without implicit agreement’ among a majority of the judges ‘we are left without a controlling opinion’).”  (Whole Food’s Rehearing Denial)

Nov

30

FTC Challenges Proposed Merger Between Firms that Provide Electronic Systems to Estmate the Cost of Collision Repairs

Posted by : Matthew Wild | On : November 30, 2008

Category: Antitrust, FTC Actions, HSR Review, Mergers and Acquisitions, Section 7 (Clayton Act)

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On November 25, 2008, the FTC issued an administrative complaint challenging the proposed merger between CCC Information Services and Mitchell International.  The FTC alleges that “the merger would hinder competition in the market for electronic systems used to estimate the cost of collision repairs, known as “estimatics,” and the market for software systems used to value passenger vehicles that have been totaled, known as total loss valuation (TLV) systems. The FTC’s administrative complaint alleges that the merger, which is valued at $1.4 billion, would harm insurers, repair shops and, ultimately, U.S. car owners by reducing from three to two the number of competitors in the two related businesses.”  FTC CCC-Mitchell Press Release  The FTC claims that with the existence of high barriers to entry, the merger would allow the combined firm to raise prices to its customers unilaterally as well as allow the remaining two firms to collude and raise prices.  Absent extraordinary circumstances, the agencies will challenge mergers to duopoly.  The posture of this challenge is interesting.  The FTC issued the administrative complaint and approved commencement of action in federal court to seek a temporary restraining order and preliminary injunction but has not commenced such an action.  The parties must have consented to delay closing or the HSR waiting must not have yet expired.  These actions are usually brought at the very end of the waiting period and parties do not routinely consent to delay their mergers.  It would be interesting to know what happened here.

Oct

29

DOJ Clears the Merger of Northwest and Delta Airlines

Posted by : Matthew Wild | On : October 29, 2008

Category: Antitrust, HSR Review, Mergers and Acquisitions, Section 7 (Clayton Act), U.S. Department of Justice (Antitrust Division)

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 Excerpt of the Antitrust Division’s press release:

WASHINGTON — The Department of Justice’s Antitrust Division issued the following statement today after the Division announced the closing of its investigation of the proposed merger of Delta Air Lines Inc. and Northwest Airlines Corporation:

“After a thorough, six-month investigation, during which the Division obtained extensive information from a wide range of market participants — including the companies, other airlines, corporate customers and travel agents — the Division has determined that the proposed merger between Delta and Northwest is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition.

“The two airlines currently compete with a number of other legacy and low cost airlines in the provision of scheduled air passenger service on the vast majority of nonstop and connecting routes where they compete with each other. In addition, the merger likely will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers. Consumers are also likely to benefit from improved service made possible by combining under single ownership the complementary aspects of the airlines’ networks.”

Oct

24

DOJ and 13 States Sue to Protect Cattle Suppliers and Beef Consumers

Posted by : Matthew Wild | On : October 24, 2008

Category: Antitrust, HSR Review, Mergers and Acquisitions, Section 7 (Clayton Act), State Attorneys General, U.S. Department of Justice (Antitrust Division)

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On October 20, 2008, the Antitrust Division, Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas and Wyoming sued to enjoin JBS Beef’s acquisition of National Beef Packing in the United States District Court for the Northern District of Illinois.  (Beef Complaint; Beef Press Release)  The government alleges that the merger would combine the third and fourth largest U.S. beef packers, which would result in lower prices for cattle and higher prices for beef consumers.  This action is interesting in two respects.  First, one of the theories of competitive harm is that the beef packers will gain monopsony power.  While the monopsony theory is well established and has been pursued in Antitrust Division challenges to mergers (e.g., Cargill’s acquisition of Continental Grain’s Commodity Marketing Group), some academics reject it because it is inconsistent with the monopsonist’s economic interest to drive prices so low that suppliers exit.  Second, although venue and personal jurisdiction were available in any district where the companies did business, the government chose the Chicago as its forum.  It likely did so because it has received favorable treatment there in the past and Seventh Circuit cases are favorable to merger challenges.  For example, the government prevailed in United States v. UPM Kymmene Oyj (a case in which this author was trial counsel) even though the government’s case was at best shaky and viewed by many as without merit.

Aug

20

FTC Clears EA’s Acquisition of Take-Two

Posted by : Matthew Wild | On : August 20, 2008

Category: Antitrust, FTC Actions, HSR Review, Mergers and Acquisitions, Section 7 (Clayton Act)

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The Wall Street Journal reported today that the FTC has informed Electronic Arts and Take-Two Interactive Software that is has no objection to the combination of the companies. As you may recall, on June 4, 2008 the parties agreed to give the FTC an additional 45-days to review the transaction under the HSR Act. The clearance might be too late. EA’s tender offer expired on August 18, 2008. The Wall Street Journal reports, however, that EA is still is exploring ways to acquire Take-Two.

Jul

29

D.C. Circuit Reverses Decision Denying Preliminary Injunction in Whole Foods/Wild Oats Merger

Posted by : Matthew Wild | On : July 29, 2008

Category: Antitrust, FTC Actions, Mergers and Acquisitions, Section 7 (Clayton Act)

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Today, the D.C. Circuit reversed the district court’s decision that denied a preliminary injunction in the Whole Foods/Wild Oats merger. FTC v. Whole Foods Markets, Inc., No. 07-5276 (D.C. Cir. July 29, 2008) (Whole Foods decision). Crucial to the decision was the D.C. Circuit’s holding that the FTC might have been able to establish a submarket consisting of premium natural and organic supermarkets.

The case was remanded to the district court and one of the questions was whether there was some remedy available during the pendency of the FTC administrative proceedings. The D.C. Circuit noted that the FTC complained of adverse effects on competition in only eighteen different local markets. The D.C. Circuit also noted that neither party discussed whether sufficient distribution facilities were available for Wild Oats to remain a viable competitor and if only one Wild Oats store can re-open that would be better than nothing. The D.C. Circuit suggested a hold separate order, which seems to imply that the assets would be carved out and transferred from Whole Foods to a trustee. This begs the question, however, of who would (and could) manage the store(s) independent of Whole Foods.

Ultimately, it seems like Whole Foods can expect to lose the administrative proceedings. If it does, Whole Foods may have to divest stores in these markets. The Supreme Court long ago held that divestiture is the preferred remedy. Neither the courts nor the agencies favor rescission.

Jul

25

The FTC Protects Vodka Drinkers

Posted by : Matthew Wild | On : July 25, 2008

Category: Antitrust, Consent Decrees, FTC Actions, HSR Review, Mergers and Acquisitions, Relevant Markets, Section 7 (Clayton Act)

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It appears that the antitrust agencies are more vigilant to protect the interests of vodka drinkers than beer drinkers. As explained in the June 6, 2008 Post, the Antitrust Division was not concerned that there would be negative effects on competition if Coors and Molson formed a joint venture. However, the FTC has taken the opposite view in a merger among spirit makers because it effectively would put Absolut and Stolichnaya under the control of one company. The buyer Pernot Ricard will gain control V&S Vin Spirit’s Absolut and has a distribution agreement that covers Stolichnaya, In analyzing the transaction, the FTC defined the market as super premium brands of vodka and claimed that consumers viewed Absolut and Stolichnaya as their top two choices. Without discussing market shares, the Analysis to Aid Public Comment asserts that post-merger the buyer will be able to increase the prices of super premium vodka. Under the consent agreement, Pernot Ricard must end its distribution agreement for Stolichnaya within 6 months. The press release and Analysis to Aid Public Comment are attached. FTC Press Release (Vodka); Analysis to Aid Public Comment (Vodka).