United States: Antitrust M&A Snapshot (October – December Update)

Although the antitrust agencies have new leadership after Trump's inauguration on January 20, the end of 2016 continued the agencies' aggressive enforcement actions. The antitrust agencies closed out 2016 by challenging several notable mergers and acquisitions, with the DOJ in court challenging three different deals simultaneously. Both the Federal Trade Commission (FTC) and US Department of Justice (DOJ) finalized decisions in several ongoing investigations in a variety of industries before the end of the Obama administration. The regulators approved at least six mergers with consent orders, of which five required significant divestitures. The agencies required a buyer upfront in all five transactions that required significant divestitures. DOJ approved one deal without a consent order in the event management software platform industry, which is notable given pre-election reports speculating DOJ could sue to block the transaction.

Health care continues to be in the antitrust crosshairs. DOJ argued that two national health insurance mergers would harm competition during two trials in Q4 of 2016. Adding to the regulators' successes was an October 31, 2016, opinion from the US Court of Appeals for the Seventh Circuit, which reversed a lower court decision that refused to enjoin the merger of two large health systems in Chicago. This builds on the FTC's Third Circuit win in the Hershey, Pennsylvania hospital case. Between the two, a legacy of the Obama administration will be judicial support for the FTC's theories of markets and competitive effects in health cases, focused on provider leverage over payors rather than patient travel patterns. The courts have swung from the old "Elzinga-Hogarty" patient flow model to a new "willingness-to-pay" economic model.

EU: October – December Update

The European Commission (Commission) merger control statistics show that in 2016, 347 decisions were rendered during Phase I. One decision found that the notification fell outside the scope of the Merger Regulation, 327 were findings of compatibility with the internal market pursuant to Article 6(1)(b) of the Merger Regulation (245 of which were under the simplified procedure) and 19 were cleared after commitments had been given in Phase I.

Eight decisions were taken following Phase II proceedings, seven of which cleared the transactions. In six of these seven cases, however, clearance was only given after commitments had been given. One of the transactions was prohibited. Finally, eight cases were withdrawn during Phase I and one case during Phase II.

As can be seen from the graph below, there was an increase in notified cases and Phase I clearances in 2016.

The Commission is currently reviewing three large transactions in the chemicals sector, namely Dow/DuPont, ChemChina/Syngenta and Bayer/Monsanto. The first two transactions are both currently in Phase II (see below), and the Commission has extended the review period of ChemChina/Syngenta once again. As for Bayer/Monsanto, the transaction is currently in pre-notification.

When reviewing mergers, the Commission applies the so-called "priority rule." In practice, this means that when two or more mergers arise in the same industry, the Commission focuses its analysis on the merger that is filed first without taking into account the impact of other anticipated mergers in the same sector/markets. Despite the fact that the Commission has to date always applied the priority rule, it is understood that it is taking a more holistic approach towards the aforementioned deals in the chemicals sector. In particular, it is understood that the Commission may be considering the impact of all three proposed mergers on the industry, rather than merely analyzing the first notified merger without considering the possible impact of the other two. Whether the priority rule is applied or not, the results of the Commission's review of these deals will certainly be an interesting development to follow in European merger control in 2017.

Snapshot of Events (Legislation/Agency Remarks/Speeches/News, etc.)

         President Trump

We can expect significant changes at the FTC and DOJ now that President Trump has taken office. He will have the opportunity to appoint the leadership at both agencies. New leadership may result in a less aggressive merger enforcement posture than we have seen in the final years of the Obama administration, during which the agencies have actively challenged many mergers in court.

         FTC Chairwoman to Step Down Mid-February After Aggressive Tenure

FTC Chairwoman Edith Ramirez announced her resignation effective February 10, which will leave the FTC with three vacancies. Until the new Commissioners are nominated and confirmed by the Senate, the FTC will be left with one Republican Commissioner and one Democratic Commissioner. With only two Commissioners, the FTC will need a unanimous vote to challenge any transaction or agree to any settlement. Chairwoman Ramirez served as an FTC Commissioner since April 5, 2010, and became Chairwoman on March 4, 2013. Under her leadership, the FTC brought approximately 100 enforcement actions challenging anticompetitive mergers and business conduct, including successful challenges to hospital mergers and to the mergers of Sysco and US Foods, and Staples and Office Depot.

         Antitrust Agencies Issue Guidance to Human Resources Professionals

On October 20, 2016, the FTC and DOJ issued joint Antitrust Guidance to Human Resources (HR) Professionals involved in hiring and compensation decisions. The agencies issued the guidance to educate HR professionals about how the antitrust laws apply in the employment context. DOJ announced it will criminally investigate "naked" wage-fixing or no-poaching agreements between employers that are unrelated or unnecessary to a larger legitimate collaboration. While this guidance was not focused on merger or acquisition- related issues, parties to M&A transactions will want to keep the guidance in mind in connection with no-hire / non-solicitation provisions that may arise in connection with a transaction.

         DOJ Official Warns That Conduct Remedies May Not Fix Vertical Antitrust Issues

Deputy Assistant Attorney General of the Antitrust Division, Jon Sallet, gave remarks at the Antitrust ABA Fall Forum on November 17, 2016, where he cautioned parties not to assume that conduct remedies will always be a sufficient remedy to fix vertical transactions. Conduct remedies must adequately address the risks identified, be easily monitored, and be capable of prompt and efficient enforcement. Nevertheless, under the Trump administration, the new leaders at the DOJ and FTC may be less concerned about vertical transactions.

         FTC's Premerger Notification Reverses Position and Requires Foreign Competition Documents to Be Provided with HSR Filings

On November 28, 2016, the FTC Premerger Notification Office announced guidance concerning the submission of documents addressing foreign competition as part of the Hart-Scott-Rodino (HSR) premerger notification filing. Previously, parties could exclude documents related only to foreign markets. Now, the FTC will require companies to submit responsive documents that discuss only foreign markets or foreign competition, even if there is no reference to a US market. This guidance reverts to the agency's pre-2011 position.

         DOJ and FTC Provide Comments to FERC Regarding Market Power in Wholesale Electricity Markets

Both DOJ and FTC submitted comments to the Federal Energy Regulatory Commission (FERC) in November 2016 regarding modifications to FERC's requirements for how it assesses certain transactions and market-based rate applications. The antitrust agencies recommended that FERC reexamine its approach to mergers and electricity sales to account for a broad range of evidence of market power in addition to structural indicators like market share.

European Union

  • FCA Imposes Its First Ever Fine for Gun-Jumping

In November, the French Competition Authority (FCA) imposed its first ever fine for gun-jumping. The FCA imposed a fine of €80 million on Altice Luxembourg and SFR Group for implementing two proposed acquisitions in the telecommunications industry before obtaining the FCA's clearance. The FCA found that even though Altice had not acquired the targets' assets during the waiting period, it had started exercising decisive influence over them, therefore also gaining access to sensitive information concerning its competitor's business and its future intentions1.

         Privacy Considerations Taken into Account in Merger Control

In the context of the Commission's decision on the acquisition of LinkedIn by Microsoft, the Competition Commissioner—Margarethe Vestager—stated that DG Competition takes a "deeper interest" in the relationship "between privacy and protection of personal information and protection of competition law and big data because of the interest in that and how important it potentially could be." The European regulator expects that more cases will arise where privacy concerns will need to be taken into account in merger reviews of big data companies.

In the Microsoft/LinkedIn case, the Commission considered that even though data protection concerns, per se, do not fall within the scope of European antitrust law, they can still be taken into account in the competitive assessment of the merger. This is particularly the case when privacy is considered by consumers as a factor of quality and the merging parties compete with each other in relation to this factor.

Commission Alleges Facebook Provided Misleading Information on the Review of Its Acquisition of WhatsApp

The Commission sent a Statement of Objections to Facebook alleging it provided incorrect or misleading information during the Commission's review of its acquisition of WhatsApp.

When reviewing Facebook's planned acquisition of WhatsApp in 2014, the Commission looked, among other elements, at the possibility of Facebook matching its users' accounts with WhatsApp users' accounts. In its notification, and in a reply to a request of information, Facebook stated that it would be unable to establish reliable automated matching between the two companies' user accounts.

In August 2016, WhatsApp announced, among other updates to its terms of service and privacy policy, the possibility of linking WhatsApp user phone numbers with Facebook user identities. WhatsApp explained that this was done with a view to improving the service by, for example, allowing Facebook to offer better friend suggestions or displaying more relevant ads on WhatsApp users' Facebook accounts.

The Commission takes the preliminary view that, contrary to Facebook's statements and reply during the merger review, the technical possibility of automatically matching Facebook users' IDs with WhatsApp users' IDs already existed in 2014. The Commission is therefore concerned that Facebook intentionally, or negligently, submitted incorrect or misleading information to the Commission, in breach of its obligations under the EU Merger Regulation.

The Commission indicated that the current investigation is limited to the assessment of breaches of procedural rules. In fact, its clearance decision was based on a variety of factors besides the possibility of matching user accounts. Therefore, the current investigation will not have an impact on that decision.

This procedure stresses the importance of providing accurate information during the merger control review procedures before the Commission. Failing to do so may result in a fine being imposed on the notifying party.

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