Posted by : Matthew Wild | On : June 21, 2008

On May 28, 2008, the Antitrust Division required divestitures as a condition of its approval of Cengage Holdings’ $750 million proposed acquisition of Houghton Mifflin College Division. Both companies publish college textbooks. The Antitrust Division defined the relevant product market as textbooks in courses on particular subject matters. The Antitrust Division alleged that students had no significant alternatives to new textbooks in these courses because, for example, used textbooks are not consistently available in large numbers. The Antitrust Division limited the relevant geographic market to the United States but did not explain why foreign publishers could not compete effectively. The Antitrust Division calculated that in 14 overlapping courses, the minimum post-merger HHI would be 3,000 with a delta of 500. The Antitrust Division concluded that high barriers to entry exist because instructors infrequently switched textbooks and therefore it would be unlikely that a publisher would invest in the authors and editorial staff necessary to write a new textbook. The Antitrust Division’s Press Release and Competitive Impact Statement are attached. DOJ Press Release (Cengage/Houghton Mifflin); Competitive Impact Statement (Cengage/Houghton Mifflin).



Posted by : Matthew Wild | On : June 6, 2008

On June 5, 2008, the Antitrust Division issued a press release advising that it was closing its investigation into the potential anticompetitve effects from a joint venture between SABMiller plc (Miller) and Molson Coors Brewing Company to combine their operations in the United States. Although it did not provide any quantitative data, the Antitrust Division stated that based on information it received during its eight-month investigation from a wide-range of industry participants, it concluded that no adverse effect on competition would arise from the combination. Indeed, the Antitrust Division credited the parties’ efficiencies claims — noting that they were “verifiable and specifically related to the transaction and include large reductions in variable costs that are likely to have a beneficial effect on prices.” Thus, they met criteria set forth in the Merger Guidelines. Clearance of a merger based in large part on efficiencies is unusual. As a general matter, efficiencies are used by the parties to explain that there is no anticompetitive motive for the merger. Here, the parties were able to obtain much more credit for their efficiencies. Where beer drinkers are concerned, however, Antitrust Division did not note whether there would be a decrease in quality. Indeed, it is possible that the beer companies might rationalize brands to obtain efficiencies. Do loyalists to, for example, Molson Dry, have anything to fear? The Antitrust Division’s press release is attached. DOJ Press Release (Miller/Coors)



Posted by : Matthew Wild | On : June 4, 2008

On June 4, 2008, Electronic Arts (video game maker) gave the FTC an extension of time under the HSR Act to review the potential competitive effects of its $2 billion proposed acquisition of Take-Two (maker of Grand Theft Auto).  Under the agreement, EA must give the FTC 45 days’ notice of its intention to close.  Parties often grant the Antitrust Division and FTC more time to review their transactions with the hope of convincing the agencies not to challenge the merger or to allow them to negotiate a remedy.



Posted by : Matthew Wild | On : May 12, 2008

On May 5, 2008, the FTC conditioned its approval of Agrium’s $2.65 billion proposed acquisition of UAP Holding on divestitures on divestitures. The parties provide one-shopping for farms and farmers rely on these type of local stores for bulk fertilizer. Because of its weight, it does not make economic sense to ship these products more than 30 miles. Entry is difficult because of high sunk costs and the need to train personnel. Based on these dynamics, FTC believed that the parties’ overlapping stores in Croswell, Richmond, Imlay City, Vestaburg and Standish, Michigan and Girdletree, Maryland might give the combined company the ability to raise prices in those areas. Accordingly, the FTC required divestitures of one of the parties’ stores in these areas. The press release and analysis to aid public comment are attached.Agrium (Press Release);

Agrium (Analysis to Aid Public Comment)



Posted by : Matthew Wild | On : May 5, 2008

On April 30, 2008, the Antitrust Division conditioned its approval of an acquisition by Regal Cinemas, Inc. of Consolidated Theater Holdings GP on divestitures in Southern Charlotte, Northern and Southern Raleigh and Asheville. On January 14, 2008, Regal — with $2.6 billion in revenue last year — agreed to acquire Consolidated — with $144 million in revenue last year — for $210 million. The Antitrust Division alleged a product market of the exhibition of first-run commercial movies. With respect to the geographic markets, the Antitrust Division alleged that moviegoers in Southern Charlotte, Northern and Southern Raleigh and Asheville would be unlikely to travel a significant difference in response to a small but significant non-transitory increase in price. The relevant markets were highly concentrated with HHIs ranging from 6058 to 6523 and deltas exceeding 2,000 except for Southern Raleigh where the transaction would be a merger to monopoly. The Antitrust Division also alleged high entry barriers because the demographics of these geographic markets would not support the sunk costs associated with opening a new theater. Attached are the DOJ Press Release and Competitive Impact Statement. Regal (DOJ Press Release); Regal (Competitive Impact Statement)



Posted by : Matthew Wild | On : March 26, 2008

March 24, 2008. The Antitrust Division cleared the merger between XM Satellite Holdings and Sirius Satellite Radio — the only satellite radio providers. In its closing statement, the Antitrust Division concluded that it would be unlikely that the parties could raise prices post-merger. The Antitrust Division noted that the parties do not compete for current customers because the costs of equipment makes switching to the other provider impractical. The Antitrust Division concluded that relevant market for new customers would have to include alternative sources for audio entertainment in addition to satellite radio. The Antitrust Division further noted that future technology would only increase the competition faced by the parties. With respect to competition for sole source contracts with major auto manufacturers, those contracts are locked-in and there is unlikely to be any competition for those contracts for many years. Finally, the Antitrust Division noted that the transaction would result in substantial efficiencies (and cost savings) which further supported its conclusion that the transaction would not harm competition.



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

Three recent developments serve as cautionary tales to parties to prospective transactions. These actions serve to remind practitioners that there is a genuine possibility of agency action even in cases where the buyer has only a minority ownership interest in a company that competes with the target; the value of the overlapping assets represent less than one percent of the transaction’s value; and the transaction has closed without any HSR review. In Bain’s and THL Partner’s (“THL”) bid to acquire acquire Clear Channel, the Antitrust Division required, among other things, divestiture by THL Partners of its passive 14% equity interest in a company that competes with Clear Channel because it was concerned that THL would seek to reduce competition between the two parties post-merger. (See Post of February 28, 2008 and attached description). In the Cookson/Foseco transaction, the Antitrust Division required divestitures worth about $4 million out of a $1 billion transaction. Although the monetary value of the divestitures was relatively minimal, the Antitrust Division’s HSR review appears to have delayed the closing by nearly five months. (See Post of March 5, 2008). Parties should therefore understand that even smallest competitive overlap can trigger serious agency scrutiny and appreciate the attendant cost and delay resulting from a Second Request under the HSR Act. On January 25, 2008, the U.S. Court of Appeals for the Fifth Circuit denied Chicago Bridge’s Petition for Review of the FTC’s order requiring divestitures after Chicago Bridge acquired Pitts-Des Moines’ (“PDM”). See Chicago Bridge & Iron Co, N.V. v. FTC, No. 05-60192, 2008 WL 203802 (5th Cir., Jan. 25, 2008). Merging parties should be particularly concerned that the FTC initiated its investigation of the transaction after the HSR mandatory waiting period had expired. On September 12, 2000, Chicago Bridge and PDM made their HSR filings and the mandatory waiting expired without any HSR review by the antitrust agencies. More than 30 days after the filings (and thus after the HSR waiting period expired) but before closing, the FTC informed the parties that it had begun to investigate the potential competitive effects of the transaction. Nevertheless, in February, 2001, the parties closed the transaction, and in October 2001, the FTC issued its administrative complaint. Ultimately, Chicago Bridge was required to divest all of PDM’s assets. Notably, because the transaction closed, the Buyer — Chicago Bridge — assumed all of the antitrust risk in the transaction. Chicago Bridge paid $84 million for PDM’s assets and will have to sell them at fire sale prices. Thus, Buyers should be cautious in consummating transactions that may prove anticompetitive particularly during the pendency of an agency investigation. If the purchase agreement allows them to delay closing, they ought to consider doing so. “Buyer Beware: Consummating Non-HSR Reportable Transaction May Prove Costly In the End” (appearing in the Antitrust Litigator; attached) examines the risks that can arise from consummating a merger that turns out to be anticompetitive. Discussion(Bain&THL/Clear Channel); Buyer Beware: Consummating Non-HSR Reportable Transactions May Prove Costly in the End”



Posted by : Matthew Wild | On : March 10, 2008

March 4, 2008. On July 10, 2007, Altivity Packaging LLC (“Altivity”) and Graphic Packaging International, Inc. (“Graphic”) announced their plans to merge in a transaction valued at $1.75 billion. Altivity and Graphic are the first and fourth largest manufacturers (respectively) of coated recycled boxboard (“CRB”) in the United States and Canada. Post-merger, the combined firm would control 42% of the CRB supply in North America. CRB is used to make products such as cereal boxes. The Antitrust Division also alleged high barriers to entry and expansion. Accordingly, the Antitrust Division required the parties to divest 11% of their capacity to a new entrant. The Antitrust Division was satisfied that such a divestiture would replace any loss in competition resulting from the merger. The DOJ Press Release and Competitive Impact Statement are attached.  DOJ Press Release (Altivity); Competitive Impact Statement (Altivity)  This has been a very active day for the Antitrust Division. Earlier in the day, the Antitrust Division challenged the Cookson/Foseco transaction.



Posted by : Matthew Wild | On : March 5, 2008

March 4, 2008. On October 11, 2007, Cookson Group plc — a U.K. company — entered into an agreement to purchase Foseco plc – a U.K. company — for about $1 billion. Both companies manufacture isotstatically press carbon ceramic products (“CBCs”) in North America and sell them throughout the United States. CBCs are used in the continuous casting steelmaking process. The parties’ 2006 CBC sales in the U.S. were $75 million and $4 million, respectively. The Antitrust Division alleged relevant product markets narrower than CBCs generally — namely, laddle shrouds and stopper rods. The Antitrust Division alleged a relevant geographic market of North America because foreign producers are at a competitive disadvantage. They have higher delivered costs and greater lead time. Rather than providing market share and HHI information for each relevant market, the Antitrust Division simply alleged that post-merger the parties would have a combined market share in the laddle shrouds and stopper rods markets of 75% and the markets would have an HHI of more than 6000 with a delta of 700. The Antitrust Division alleged high entry barriers because of the high costs of manufacturers of other CBCs to switch to the manufacture of laddle shrouds and stopper rods in response a small but significant non-transitory price increase. Accordingly, the Antitrust Division required divestiture of the overlapping assets. This action demonstrates the Antitrust Division’s vigilance in catching small competitive overlaps. Foseco had only $4 million in annual sales of CBCs in North America. Yet the Antitrust Division caught the potential competitive harm and required a remedy. The DOJ Press Release and Competitive Impact Statement are attached. DOJ Press Release (Cookson);Competitive Impact Statement (Cookson)



Posted by : Matthew Wild | On : February 28, 2008

February 13, 2008.  On November 16, 2006, Bain Capital and Thomas H. Lee Partners (“THL”) entered into an agreement to purchase a 70% interest in Clear Channel Communications for $28 billion.  By the time that the transaction was scheduled to close, Bain and THL also would have passive equity interests in two competing radio operators – Cumulus Media Partners (“CMP”) and Univision Communications.  Notwithstanding that the equity interests would be passive and with respect to Univision would be only 14%, the Antitrust Division alleged that the overlap between these competitors would result in higher prices for radio advertising and Spanish-language radio advertising in the geographic markets in which they compete.  Accordingly, the Antitrust Division conditioned approval of the transaction on divestiture of the competing assets.  Attached is a more in depth discussion of the transaction and Antitrust Division’s competitive concerns.  Discussion(Bain&THL/Clear Channel)  The DOJ Press Release and Competitive Impact Statement also are attached.  DOJ Press Release (Clear Channel)Competitive Impact Statement (Clear Channel)