Worldwide: Antitrust M&A Snapshot | Q1 2023

UNITED STATES

• Wilson Resigns as FTC Commissioner

On February 14, the Federal Trade Commission's (FTC's) lone Republican commissioner, Christine Wilson, announced that she was resigning. Wilson explained her decision in an op-ed published in The Wall Street Journal the same day, wherein she accused FTC Chair Lina Khan of disregarding the rule of law and due process and abusing the FTC's power. Wilson has been a consistent opponent of policy and process changes implemented by the Democratic commissioners. In her op-ed, Wilson highlighted several of her disagreements with her Democratic colleagues. For example, she criticized Chair Khan's decision not to recuse herself from the FTC's challenge of Meta's acquisition of Within, despite Chair Khan's prior statements arguing that all future Facebook deals should be blocked. Commissioner Wilson also expressed disagreement with the FTC's expansive new policy statement on policing "unfair methods of competition" under Section 5 of the FTC Act and argued that changes to the FTC's merger review process have imposed a "tax on all mergers." Wilson's term was not set to expire until 2025. The immediate practical impact of her departure likely will not be significant, as the FTC's three Democrats already had a majority on the Commission.

• Merger Guidelines Delayed

The new FTC / Department of Justice (DOJ) Horizontal Merger Guidelines were expected to be released at the end of March, but they continue to be refined by the agencies, with the release now expected within the next several months. At the American Bar Association (ABA) Antitrust Section Spring Meeting in late March, DOJ officials signaled that the forthcoming updates to the Horizontal Merger Guidelines will be guided by a focus on certain relevant stakeholders, including the American people, workers and small businesses, and with a commitment to democratizing antitrust enforcement. This signals a continued move away from the Chicago School focus on "consumer welfare" toward the embracing of a broader set of considerations. We expect the new Guidelines will be far more enforcement-oriented than the current Guidelines.

• Agencies Maintain Focus on Private Equity, Especially in Healthcare

Consistent with recent statements on private equity, at the ABA Spring Meeting, enforcers from the FTC and DOJ again highlighted their continued targeting of private equity transactions, particularly with regard to healthcare. Rahul Rao, deputy director at the FTC's Bureau of Competition, stated that the FTC's concern with private equity stems from many of the firms' business models. He said that, in many cases, private equity deals' debt financing and associated heavy debt loads can undermine a business's long-term health and its ability to compete, chiefly because the private equity owner focuses on short-term returns through drastic cost-cutting measures. Rao said, "This debt-fueled, strip-and-flip business model can hollow out long-term productive capacity." He also bemoaned nonreportable "serial acquisitions" by private equity firms in healthcare, asserting that private equity ownership of healthcare businesses is correlated with higher prices, lower wages and degraded quality of care.

• Continuing a Trend: FTC Loses Challenge to Meta's Acquisition of Within

In February, a California federal judge rejected the FTC's challenge to Meta's acquisition of Within, developer of the virtual reality (VR) fitness app Supernatural. The FTC subsequently dropped its in-house administrative challenge to the transaction. The loss continues the recent trend of the FTC and DOJ losing merger challenges in federal court where the agencies rely on non-traditional theories of antitrust harm. In the Meta / Within case, the FTC put forward a theory that the acquisition would eliminate potential competition between Meta and Within. The judge concluded that Meta was not reasonably likely to enter the virtual reality fitness app market absent the deal with Within. Other recent merger challenges that the agencies have lost in court include Booz Allen Hamilton's acquisition of EverWatch, UnitedHealth's acquisition of Change Healthcare and US Sugar's acquisition of Imperial Sugar. DOJ dropped its appeal in the UnitedHealth / Change Healthcare case in late March.

• Agencies Continue to Challenge Transactions Outright Rather than Negotiate Settlements

The FTC and DOJ continue to challenge transactions outright in court rather than negotiate settlements with merging parties. For example, DOJ is moving forward with its challenge to Assa Abloy's proposed acquisition of Spectrum Brands' hardware and home improvement business, despite the merging parties' plan to divest assets to a third party. That case is scheduled for trial in April and the trial will likely focus on the sufficiency of the parties' divestiture fix. DOJ also filed a lawsuit to block JetBlue's proposed acquisition of Spirit in March, despite the parties' offer to divest a number of gates at four airports. The FTC also challenged Intercontinental Exchange's proposed acquisition of Black Knight, despite the parties' divestiture proposal.

EUROPEAN UNION

• New Regulatory Burden: The EU Foreign Subsidies Regulation Enters into Force

On January 12, the Foreign Subsidies Regulation (FSR) entered into force. The FSR will have a significant impact on M&A activity, as it provides for an additional regulatory hurdle for certain transactions where the acquirer (or party to a joint venture or merging parties) has received subsidies outside of the EU. A transaction is subject to a mandatory pre-closing notification (and standstill obligation) if both of the following conditions are met:

• The EU-wide turnover of at least one of the parties, the acquired company or the joint venture amounts to at least EUR 500 million (taking into account group turnover).
• The total amount of ex-EU financial subsidies received by the acquirer and the target, or the joint venture and its parent company, or the merging parties is in excess of EUR 50 million over the last three years.

Failure to file a notification, breaching the standstill obligation, or providing incorrect or misleading information can subject parties to significant fines (depending on the nature of the breach, 1% or 10% of the notifying party's worldwide turnover in the last financial year). In addition, the European Commission under the FSR can require notification of transactions that fall below the thresholds or can initiate an investigation of foreign subsidies ex-officio, unrelated to any M&A activity. Following notification, the assessment focuses on the effects of third-country subsidies on competition by weighing possible negative effects that could lead to a distortion of the internal market against any possible positive effects. In addition to approving or prohibiting a transaction, the Commission can require structural or non-structural commitments from parties in order to remedy the distortion of competition on the internal market.

The FSR will go into effect on July 12, 2023, with parties being required to file notifications of transactions three months later in October 2023 (feedbackto the public consultation of the draft Implementing Regulation ended on March 6, 2023).

On February 6, 2023, the Commission published a draft Implementing Regulation that provides the notification forms and content requirements. While the review process closely mirrors that of the EU merger control regime, FSR notifications require substantial additional information on financial contributions and their effects.

• A New Route for Complainants: ECJ Towercast Ruling Confirms Non-Notifiable Acquisition Can Be Abuse of Dominant Position

With its judgment on March 16, 2023 (C-449/21 Towercast), the European Court of Justice (ECJ) held that the acquisition of a target that does not trigger a notification obligation under merger control rules may be subject to a proceeding by national competition authorities and national courts on the basis that the acquisition constitutes an abuse of a dominant position according to Article 102 of the Treaty on the Functioning of the European Union.

The French competition authority, theAutorité de la Concurrence, had originally rejected an abuse-of-dominance complaint from French broadcasting services operator Towercast against competitor TDF's acquisition of rival Itas in 2016. Towercast appealed to the French courts, who asked the ECJ for a preliminary ruling. According to the ECJ, ex-ante merger control for transactions that meet the threshold for a notification under EU or EU Member State merger control rules "does not preclude an ex-post [merger] control [review] of a transaction that does not meet that threshold." National courts may therefore open investigations into transactions that fall outside the scope of such rules to investigate whether a transaction impacts competition. A few days after the judgment, the Belgian Competition Authority launched an investigation into the acquisition of edpnet by Proximus (the historical telecom incumbent) over concerns that the transaction would allow Proximus to wipe out its only remaining competitor for the wholesale and retail supply of fixed telecoms services on its own network.

The judgment equips the European Commission and national competition authorities alike with another instrument to scrutinize below-threshold mergers, in addition to the revised application practice of referrals pursuant to Article 22 EUMR (see also Adobe / Figma, below). Moreover, since a claim that a company has abused its dominant position is only time-barred after five years, the ruling opens the door for potential complainants to take legal action to challenge non-notified transactions.

UNITED KINGDOM

• CMA's New Leadership Team Focuses on Digitalisation and Supply Chain Issues Impacting Consumers

The UK Competition and Markets Authority (CMA) published its annual plan for 2023/24 on March 23, 2023. The plan is the first for the new CEO of the CMA, Sarah Cardell, and chair of the CMA, Marcus Bokkerink. It sets the focus of the CMA's work in the coming year and, new to this edition, provides a three-year outlook. The focus in M&A is largely familiar: The CMA intends to deal with digitalization and emergent technologies by protecting innovation and investment in new products and better service. New is an increased focus on how transactions may harm the supply chain.

The plan reinforces statements made by both Cardell and Bokkerink in late February. Bokkerink, in relation to M&A, emphasized that any deal with the rationale "if you can't beat your competitor, buy them" will face scrutiny, as the transaction will likely harm investment and innovation. That said, Bokkerink noted that M&A is very positive, and the CMA only intervenes when transactions potentially raise concerns (the CMA reviewed a merger notification in less than 10% of the 800 transactions reviewed by the merger intelligence unit).

Those sentiments were mirrored by Cardell, who highlighted the useful work of the merger intelligence unit in filtering out transactions that raise no issues, while also emphasizing that the CMA has jurisdiction and will review transactions where the center of gravity is outside the UK. Additionally, the CMA will look to use artificial intelligence, data and new technologies to better and more quickly assess the arguments submitted by parties.