Transcript Sentencing Guidelines

Antitrust M&A Developments
2004 – The Year in Review
March 11, 2005
© 2005 Dechert LLP
Antitrust M&A Highlights
• The government doesn’t always win
• Watch the deals that are not challenged
• Relevant market allegations continue to be very
narrow
• Unilateral effects cases require closest substitutes,
not just close substitutes
• Customer testimony has its limits
• Flexibility with remedies may increase, but parties
must honor their commitments
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Antitrust M&A Highlights
• Ninth Circuit flashes warning light for joint ventures
• Fines for Hart-Scott-Rodino violations are rising but
so are reporting thresholds
• Policymaking continues into the second term; more
changes ahead
• Senior personnel have changed and others may
soon change. Will enforcement change?
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The Government Doesn’t Always Win
• In three significant decisions, the government lost merger
challenges:
– United States, et al. v. Oracle Corporation, 331 F. Supp. 2d 1098
(N.D. Cal. 2004) (rejecting DOJ’s market definition, competitive
effects analysis and reliance on customer testimony)
– FTC v. Arch Coal, Inc., 2004 U.S. Dist. Lexis 15996 (D.D.C. Aug.
16, 2004) (rejecting FTC’s “novel” theory of “tacit coordination” to
restrict output)
– United States, et al. v. Dairy Farmers of America and Southern
Belle Dairy, Civ. No. 03-206 (E.D. KY Aug. 31, 2004) (ownership
of 50% non-voting interest alone is insufficient to conclude that a
reduction in competition is likely) (appeal pending)
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But Overall, the Government
Wins More Than They Lose
• To start 2005, the government did win one, albeit in
an administrative action with the Federal Trade
Commission sitting in review of its own case
– In the matter of Chicago Bridge & Iron Company
• In the aggregate, the federal agencies are batting
better than .500 in federal litigated merger cases
since 2000 (5 years)
– DOJ prevailed in two of four litigated merger cases
– FTC prevailed in three of four litigated merger cases
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Watch the Deals that are Not Challenged
• DOJ announced a new policy of attempting to
explain the decision not to challenge certain deals
• The DOJ policy tracks the FTC practice begun in
2001 with the AmeriSource/Bergen transaction
• These statements provide valuable insight into the
Agencies’ thought processes
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Agency Explanations of Decisions Not
to Challenge Transactions in 2004
DOJ Explanations
FTC Explanations
Anthem/Wellpoint Health
Genzyme/Novazyme
Movielink (VOD JV)
(with dissent and statement)
UnitedHealth Group/Oxford
Caremark/Advance PCS
Arch Wireless/Metrocall
RJR/Brown & Williamson *
(with concurrence)
Bertelsmann/Sony JV
(concurrence)
Victory Memorial/Provena
(with dissent)
*Notable for its detailed application of coordinated
and unilateral effects analysis
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Relevant Market Allegations
Continue To Be Very Narrow
Arch Coal – 8800 Btu SPRB coal, excluding 8400 Btu SPRB
coal, is a relevant market
Southern Belle – school milk in each school district is a relevant
market
Evanston Hospital Northwestern Healthcare – northeast Cook
County and southeast Lake County comprise a geographic
market for hospital merger analysis
Connor Bros. – Sardine snacks, as distinguished from premium
sardines and ethnic sardines, constitute a relevant product
market
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Unilateral Effects Cases Require Closest,
Not Just Close Substitutes
• Chicago Bridge – “This case involves the
acquisition of a company by its closest rival in four
relevant markets;” emphasis on closest competitor
repeated throughout the opinion.
• Oracle - “Plaintiff [in unilateral effects case] must
demonstrate that merging parties would enjoy a
post-merger monopoly or dominant position, at least
in a ‘localized competition’ space;” must be a gap to
competing products in the chain of substitution.
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Unilateral Effects Cases Require Closest,
Not Just Close Substitutes
• RJR/B&W - Unilateral effects requires “uniquely
close competitors.” “There is no market in which,
and no brands for which, [B&W] and RJR are each
other’s closest competitors.”
• Cingular/AT&T Wireless – parties “are likely closer
substitutes for each other than the other. . .
providers in the relevant geographic markets.”
• Connor Bros. – acquired company described as
“main competitor” to acquiring company; other
competitors describes as “fringe” players.
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Customer Testimony Has Its Limits
• Oracle – rejecting opinion testimony of customers relating to
product market definition and competitive effects as “largely
their preferences;” finds that “unsubstantiated customer
apprehensions do not substitute for hard evidence” regarding
the costs of alternatives
• Arch Coal – rejecting testimony regarding customer
preferences in favor of testimony regarding the ability of
customers to substitute and historical patterns of substitution
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Flexibility With Remedies May Increase, But
Parties Must Honor Their Commitments
• Most merger enforcement is still by consent decree
• Government expects you to follow through on your
commitment; failure may result in fines including
reimbursement to the government of the cost of
investigating the violation
– Republic Services $1.5 million fine
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Flexibility With Remedies May Increase, But
Parties Must Honor Their Commitments.
• Agencies will consider modification of relief where
necessary
– Alcan/Pechiney (DOJ)
– Time Warner/Liberty (FTC)
• But range of relief acceptable to the agencies is
constrained by FTC and DOJ policy statements
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Ninth Circuit Flashes
Warning Light For Joint Ventures
• Pricing by joint venture may be deemed per se unlawful price
fixing by venture’s parents when parents “fail to demonstrate a
sufficient relationship between the price fixing scheme and
furthering the legitimate aims of the venture.”
– Appearance of holding out the parents as independent entities
post formation appears to have been a factor
• Dagher v. Saudi Refining Inc., 369 F. 3d 1100 (9th Cir. 2004)
(motion for rehearing pending)
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Fines for Hart-Scott-Rodino Violations are
Rising But So are Reporting Thresholds
• Misuse of the investment exemption remains the focus of
enforcement actions
– Smithfield Foods - $2 million civil penalty for twice violating HSR
in connection with purchases of IBP stock
– John Hancock - $1 million civil penalty for violating HSR in
connection with purchases of Manulife
– Bill Gates - $800,000 civil penalty for violating HSR in connection
with purchases of ICOS, a company for which he was a director
• Good news for filing parties is that statutory thresholds are
now indexed to inflation and have been raised 6.2% for 2005
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Policymaking Continues;
More Changes Ahead
• DOJ released new policy of explaining, in certain
cases, its decision not to challenge a merger
• DOJ released the Antitrust Division Policy Guide to
Merger Remedies, which was largely consistent with
the 2003 Statement of the FTC’s Bureau of
Competition on Negotiating Merger Remedies
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Policymaking Continues;
More Changes Ahead
• FTC announced new rules that harmonize (but not
equalize) the treatment of corporate and noncorporate entities under Hart-Scott-Rodino
• The Antitrust Modernization Commission announced
25 issues for study, including eight related to
mergers
• The EC issued new Horizontal Merger Guidelines
indicating greater convergence with U.S. guidelines
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Policymaking Continues;
More Changes Ahead
• DOJ and FTC announced intention to create a
commentary on the Horizontal Merger Guidelines
• FTC modified its model second request to create a
special version for retail industry mergers;
suggesting that additional industry-specific models
would be forthcoming but none yet
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New Personnel, New Direction?
DOJ Antitrust Division
• Tom Barnett, formerly of Covington & Burling,
replaces Deborah Majoras as Deputy Assistant
Attorney General
• David Higbee is added as Chief of Staff and Deputy
Assistant Attorney General
• Ken Heyer is named on an acting basis to replace
David Sibley as Deputy Assistant Attorney General
for Economics
• Hew Pate has now held the AAG job for over 2
years; how long will he stay?
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New Personnel, New Direction?
National Association of Attorneys General
• Mark Bennett (R-HI) takes over as Chair of NAAG’s
Antitrust Committee
• Elliott Spitzer (D-NY) becomes Vice Chair
• Trish Connor from the Florida Attorney General’s
Office remains chair of NAAG’s Multistate Task
Force
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New Personnel, New Direction?
Federal Trade Commission
• Tim Muris has stepped down as FTC Chairman and
has been replaced by Deborah Majoras
– Muris was a large force on the Commission and on
Commission action; explanations of decisions to not
challenge mergers clearly bear his mark
– Majoras has promised continuity and appears ideologically
compatible with Muris
• Jon Leibowitz replaces Mozelle Thompson
• Commission remains majority controlled by
Republican appointees
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New Personnel, New Direction?
Federal Trade Commission
• But Chicago Bridge strikes a very different tone
– 104 page opinion by Commissioner Swindle, long regarded
as a conservative
– Heavy emphasis on the structural presumption; strength of
the presumption regarded as a function of concentration
– Minimal discussion of competitive effects and market
circumstances that give rise to adverse competitive effects;
closer to a 1984 Merger Guidelines analysis
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New Personnel, New Direction?
Federal Trade Commission
• Is Chicago Bridge a new direction or simply a very
careful effort to avoid creating precedent that could
be used against the Commission in future deals?
– We will be watching this closely and will let you know!
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For more information, please contact:
Paul T. Denis
Michael D. Farber
Dechert LLP
Dechert LLP
Washington, DC
Washington, DC
(202) 261-3430
(202) 261-3438
[email protected]
[email protected]
282110
www.dechert.com
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