Mergers and Acquisitions

Hell or High Water for Nidec

The phrase “come hell or high water” is said to have originated in the late 1800s in reference to the conditions cattle herders encountered when they trekked from Texas to the Midwest across large prairies in the summer heat and through deep rivers. In the merger context, a hell or high water (HOHW) clause requires a buyer to take all action necessary, including divestitures, to secure approval from competition authorities. On March 8, 2019 Whirlpool Corp. sued Nidec Corp. in the Southern District of New York alleging that Nidec breached its obligations under their Share Purchase Agreement (SPA) to take all actions required to secure antitrust approvals. The case highlights the importance of antitrust risk sharing provisions in merger agreements and how courts interpret HOHW provisions.

The Whirlpool Complaint

On April 24, 2018 Nidec and Whirlpool entered into the SPA for Nidec’s $1.1 billion purchase of Whirlpool’s Embraco compressor business unit. Whirlpool manufactures home appliances and related products. Whirlpool’s Embraco business unit manufactures refrigeration compressors for kitchen refrigerators and freezers and for light commercial uses such as beverage coolers. Nidec manufactures electric motors and related products. Nidec’s Secop business unit is an Embraco competitor that also manufactures refrigeration compressors.

Given the competitive overlap in refrigeration compressors, the parties anticipated the transaction would encounter significant antitrust issues. The SPA contained several provisions that allocated the antitrust risk to Nidec:

  • Conditions to Closing: Nidec agreed to obtain approvals from competition authorities, including approval from the European Commission (EC).
  • HOHW Provision: Nidec agreed to “take any and all actions and do all things necessary, proper or advisable” to obtain all competition approvals. If any competition authority raised objections, Nidec agreed “to hold separate or to divest, license or otherwise dispose of any of the businesses or properties or assets of [Nidec], and of its Affiliates, or [Embraco].”
  • Closing Date: Nidec agreed to secure all antitrust approvals in time for closing on April 24, 2019.

The EC can approve a transaction during a Phase I investigative period if the parties offer remedies sufficient to address any competitive concern. Whirlpool alleges that Nidec prolonged and hindered the EC’s Phase I review of the transaction. Specifically, Whirlpool alleges that Nidec:

  • Failed to make timely submissions to the EC;
  • Wasted valuable time making futile arguments that no remedy should be required; and
  • Submitted a series of five remedies that failed to address the EC’s competitive concerns.

According to Whirlpool, the obvious remedy was to divest all of Secop, a clear-cut remedy that would have addressed all of the EC’s concerns. Nidec, however, refused to offer this remedy, and on November 28, 2018 the EC opened an in-depth, or Phase II, investigation of the transaction. The EC’s press release announcing the in-depth investigation noted that it tested various commitments submitted by Nidec and found that they were insufficient to address the EC’s competitive concerns.

Although Nidec ultimately agreed to divest all of Secop, it continued to prolong and hinder remedy discussions during the Phase II investigation. For example, Nidec (1) delayed responding to the EC’s request for an upfront buyer, (2) failed to effectively market Secop and (3) failed to offer attractive terms to potential buyers.

As of March 8, 2019, the date Whirlpool filed its complaint, Nidec had not reached a deal with a buyer acceptable to the EC. With the April 24, 2019 closing date fast approaching, Whirlpool seeks an order requiring Nidec to meet its HOHW obligations and immediately divest Secop at no minimum price and at whatever terms required to effect an immediate sale. In the alternative, if Nidec fails to sell Secop, Whirlpool seeks the appointment of a trustee fully empowered to immediately sell Secop.

Takeaways

HOHW provisions are not commonly used in merger agreements because they signal to the competition agencies that the parties believe the transaction raises competitive concerns and can provide the agencies significant leverage to extract a remedy. Here, Whirlpool clearly anticipated significant antitrust problems and successfully shifted all risk to Nidec by obtaining a pure HOHW provision that placed no cap on the assets that could be subject to divestiture. It appears from the complaint that rather than honor its HOHW commitment, Nidec took steps to avoid making all necessary divestitures for EC clearance of the transaction.

Whirlpool argues for a strict interpretation of the HOHW provision. Whirlpool would require a buyer to promptly propose a divestiture remedy that no reasonable competition agency could reject. Nidec will likely argue for a more flexible interpretation. It is reasonable to argue no remedy is necessary before offering remedies, and it is reasonable to offer alternative divestiture packages to test a competition agency’s bottom line. There is very little case law on a party’s obligations under a HOHW provision. If Whirlpool and Nidec are unable to settle this dispute before the April 24, 2019 closing date, we may get greater clarity on what constitutes a breach of HOHW provision.

 

EU: Parent Companies Are Liable for Cartel Damages Caused By Their Liquidated Subsidiaries

In a landmark judgment (Case C‑724/17, Vantaa vs. Skanska Industrial Solutions and others), the European Court of Justice (ECJ) decided on March 14, 2019 that companies cannot use corporate restructuring to escape their liability for cartel damages.

Background

The Skanska case concerned a cartel in the asphalt market in Finland. Seven companies were ultimately fined for their participation in the cartel. After the cartel became public, the municipality of Vantaa, which had bought asphalt during the cartel period, requested compensation from the cartelists. However, several companies had already been dissolved in “voluntary liquidation procedures.” Their sole shareholders (among them Skanska) had then acquired the dissolved companies’ assets and continued their economic activity.

The liquidation of the companies involved in the cartel did not prevent the Finnish authorities from imposing fines on their parent companies. They applied the “principle of economic continuity,” which is well established in the law on fines for EU competition law infringements. However, Skanska disputed that this principle should also apply in civil damages matters. It argued that it could not be held liable because it was not personally involved in the cartel.

The Decision of the European Court of Justice

The ECJ did not follow the arguments of Skanska and the other defendants and found that the defendants could be held liable for the harm caused by their former subsidiaries.

According to the ECJ, the EU prohibition of cartels will be effective, punitive and deterrent only if the associated right to seek private damages is also effective. The identification of the liable entity for a damage claim is governed by EU law and must be based on the same interpretation of the “concept of undertaking” as for the imposition of fines. This means, in particular, that companies cannot circumvent the right of victims to claim damages by dissolving the legal entity which participated in the cartel.

Practical Implications

The Skanska judgment is the latest of a series of judgments in the EU that have strengthened the rights of claimants in antitrust damages actions. It has closed the door for defendants to use corporate restructurings to escape their responsibilities. While Skanska concerns a very specific situation of legal succession, the ECJ’s reasoning implies that the entire case law on the “concept of undertaking” may be applied in private damages cases. As a consequence, corporate parents may be held liable for infringements of group companies to a far greater extent than previously thought.

The Skanska judgment will also have implications for M&A transactions. Since the “concept of undertaking” attaches liability to assets rather than to a particular legal entity, the buyer of a business in an asset deal needs to consider the possibility of being held financially accountable for antitrust infringements of the seller. This aspect should be part of any due diligence.

CMA Orders Parties to Unwind Integration During Ongoing Investigation

For  the first time, the UK Competition and Markets Authority (CMA) has flexed its regulatory muscles by ordering the unwinding – during the course of its ongoing investigation – of a completed acquisition. In a demonstration of its willingness to use all of the tools at its disposal – regardless of deal size or complexity – the CMA ordered Tobii AB (Tobii) to reverse any integration that had taken place as a result of its completed acquisition of Smartbox Assistive Technology Limited and Sensory International Ltd (Smartbox).

 

Background

Tobii announced its acquisition of Smartbox for £11 million in cash through a debt-financed deal in August 2018. Both are relatively small tech companies that provide specialist “augmentative and assistive communication” (AAC) for those with speech disabilities through hardware and software solutions, including eye-gaze cameras.

Following completion of the transaction, Tobii took various steps to integrate the Smartbox business, including entering into an agreement (Reseller Agreement) whereby Smartbox would act as reseller of Tobii products in the UK and Ireland, the discontinuation of certain Smartbox R&D projects, and the withdrawal of certain Smartbox products from the market.

CMA Investigation

In September 2018, the CMA opened an investigation into the completed transaction and subsequently found that it would lead to less choice, higher prices and reduced innovation for customers. The CMA gave the parties one week to submit undertakings to address these concerns, or the CMA would proceed to an in-depth, Phase 2 investigation.

Despite the parties offering various undertakings designed to alleviate the CMA’s concerns, these were not deemed sufficient and, on February 8, 2019, the CMA referred the transaction for Phase 2 investigation, simultaneously imposing an interim order preventing preemptive action.

Unwinding Order

Following further investigation during the Phase 2 process, the CMA issued – for the first time – an unwinding order. The order requires the parties to reverse integration and restore the parties to the positions in which they would have been had the integration not taken place. The parties are required to fulfil any open orders pursuant to the Reseller Agreement, but terminate it once these are fulfilled. Moreover, the unwinding order requires Smartbox to supply certain products which had been discontinued. Smartbox is also required to reinstate all R&D projects, including investment and staff allocations, which were discontinued due to the acquisition.

In imposing the unwinding order, the CMA concluded that the integration actions taken by the parties might prejudice the Phase 2 reference or impede the taking of any action by the CMA to rectify competitive harm caused by the transaction.

The CMA is scheduled to make its final decision on the transaction by July 25, 2019.

Practical Implications

The imposition of an order to unwind integration in a small tech deal could be seen as the CMA wielding a sledgehammer to crack a nut, but the Tobii/Smartbox case reflects several of the CMA’s priorities for 2019, including an increased focus on tech deals and the protection of vulnerable consumers.

The willingness of the CMA to use the full range of merger control tools at its disposal impacts not only tech deals, but deals in all industry sectors, regardless of size and complexity. Parties in completed transactions, which might affect competition in the UK, but which are not notified to the CMA, should consider carefully what steps to take in terms of integration, and whether and how those steps could be reversed if required to do so by a CMA unwinding order.

The CMA’s approach in this case also highlights the perils of not notifying transactions prior to completion. While the UK merger control regime is voluntary in theory, the consequences of not notifying are such that, in practice, the regime requires parties to carry out a careful pre-transaction assessment of the impact on competition in the UK and the risk of the CMA’s launching an investigation, instead of simply concluding that filing is not required because the UK regime is voluntary.

For more information, contact Douglas Lahnborg ([email protected]) or Matthew Rose ([email protected]).

 

M&A HSR Premerger Notification Thresholds Increase in 2019

Takeaways

  • The new minimum HSR threshold is $90 million and applies to transactions closing on or after April 3, 2019.
  • The current threshold of $84.4 million is in effect for all transactions that will close through April 2, 2019.
  • Failure to file may result in a fine of up to $42,530 per day of non-compliance.
  • The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2019. The thresholds are adjusted annually, and were delayed this year by the government shutdown. Transactions closing on or after April 3, 2019 that are valued in excess of $90 million potentially require an HSR premerger notification filing to the U.S. antitrust agencies. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

The potential need for an HSR filing requires determining whether the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold that is in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. It may also include more than the purchase price, such as earnouts and liabilities. Talk to your HSR counsel to determine what must be included in determining your Size of Transaction.

If the transaction will close before April 3, 2019, the $84.4 million threshold still applies; closings as of April 3, 2019 will be subject to the new $90 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after April 3, 2019. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Always consult with HSR counsel to determine if your transaction is HSR-reportable. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.

Agree to Disagree: Competition Authorities Differ on Approach to Digital Platforms

Tech giants have captured the attention of competition agencies around the world. As we have previously shared, the FTC is in the midst of a series of hearings on Competition and Consumer Protection in the 21st Century, including sessions on Big Data, Privacy, and Competition and the Antitrust Framework for Evaluating Acquisitions of Potential or Nascent Competitors in Digital Marketplaces. Multiple European regulators (the EU, Germany and now Austria) recently launched investigations into Amazon. Technology platforms are a priority for many other enforcers as well, from China to Australia to the UK.

With different competition authorities weighing in on how to assess tech competition, there is the potential for divergence in intensity of enforcement as well as whether existing competition doctrine suffices. Disparities are borne out by recent statements emanating from U.S., Australian, and UK competition agencies and officials.

Fresh remarks from the U.S. DOJ Antitrust Division indicate the agency does not support a regulatory approach to platforms and the digital economy. In a speech last week, agency head Makan Delrahim addressed Antitrust Enforcement in the Zero-Price Economy, noting that while zero-price strategies have “exploded” with the rise of digital platforms, “the strategy of selling a product or service at zero price is not new, nor is it unique to the digital economy.” Mr. Delrahim acknowledged the divergent views of how antitrust enforcement should treat such products and services, which range from exemption from antitrust scrutiny entirely to the creation of new, specially crafted rules and standards. Rejecting both of these “extreme views” as “misplaced,” he emphasized the ability of current antitrust doctrine – including the consumer welfare standard – to tackle the issue, stating: “[W]e do not need a wholesale revision of the antitrust laws to address competitive concerns in these contexts. . . . [O]ur antitrust laws and principles are flexible enough to adapt to the challenges of the digital economy.” Mr. Delrahim called for “careful case-by-case analysis” in enforcement. He touted the innovation and benefits that zero-price strategies have brought to consumers, crediting the country’s “pro-market economic and legal structures” and cautioning against “distortions of our antitrust standards” to address issues like privacy and data protection if they do not impede the functioning of the free market.

His speech echoes a view Mr. Delrahim and others at the Antitrust Division have expressed previously regarding the need (or lack thereof) for new rules to address the antitrust implications of “big data.” In an October 2018 speech regarding startups, innovation, and antitrust policy, Mr. Delrahim remarked that “accumulation of data drives innovation and benefits consumers” in many ways (including by enabling zero-price offerings), and that forced sharing risks undermining innovation by reducing incentives for both incumbents and new entrants. Invoking Trinko,[1] he stated that “free and competitive markets” – not antitrust agencies or courts – are best equipped to determine “how much data should be shared, with whom, and at what price.” Deputy Assistant Attorney General Bernard Nigro, Jr. has taken a similar position, stating that “forced sharing of critical assets reduces the incentive to invest in innovation” and that “where benefits to sharing exist, they can be best captured by the parties negotiating in a free and competitive market, not by government regulation.”

By contrast, other jurisdictions and industry observers considering the competitive implications of digital platforms have questioned the status quo. In their view, control of valuable data provides a competitive advantage and raises entry barriers that may entrench a platform’s dominant position and lead to competitive or consumer harm. At a higher level, France and Germany just announced an effort to overhaul competition rules to enable European companies to better develop technologies that compete on the global stage.

For example, last week the Australian Productivity Commission and the New Zealand Productivity Commission released a joint report that reviews how most effectively to address the challenges and harness the opportunities the digital economy creates (particularly for small- to medium-sized enterprises). In a section titled “Existing competition regulation may not be adequate for digital markets,” the report addressed the challenges of applying existing laws to the digital economy, including (among others) that zero-price goods and services complicate the analysis of market definition and market power, and that data “is an increasingly important business input and may be a source of market power” but is not adequately captured in traditional competition policy. Although the report acknowledged that in some cases technological developments might obviate the need for regulation (and in others the mere threat of regulation may be enough), it posited that new regulation might be necessary to maintain competitive markets: “[I]f ‘winner-take-most’ markets do end up prevailing, competition regulators may need to consider extending tools such as essential service access regimes to digital services.” An essential service (or “essential facilities”) regime would treat a digital platform’s data as an input essential to competition and require the platform to provide its competitors with reasonable access to it. In contrast to the Productivity Commissions’ suggestion, U.S. competition enforcers to date have been loath to treat digital platforms as essential facilities.

The Productivity Commissions’ report comes on the heels of the Australian Competition and Consumer Commission’s (ACCC) Digital Platforms Inquiry preliminary findings released in December. The ACCC expressed similar concerns about the rise of digital platforms and the threat they pose to consumers and the competitive process. Addressing what it found to be Google’s and Facebook’s market power in a number of markets,[2] the report encouraged governments to be “responsive, and indeed proactive, in reacting to and anticipating challenges and problems” posed by digital platforms. It offered eleven preliminary recommendations to address these concerns, including: amending merger law to expressly consider potential competition and the data at issue in the transaction, requiring advance notice of any acquisition by a large digital platform of a business with activities in Australia, and tasking a regulatory authority with monitoring the conduct of vertically integrated digital platforms. The report also proposed areas for further analysis, such as: a digital platforms ombudsman, the monitoring of intermediary pricing and opt-in targeted advertising. As such, indications from Australia suggest calls for more competition intervention have some teeth.

The UK may have a similar appetite, as indicated by a new Parliament publication addressing “Disinformation and ‘fake news.’” The statement calls for increased oversight and greater transparency into “how the big tech companies work and what happens to our data,” highlighting Facebook’s treatment and monetization of user data as an example of why intervention is needed. In addition to recommending a compulsory Code of Ethics overseen by an independent regulator with “statutory powers to monitor relevant tech companies,” the publication advocated for greater competition law scrutiny of and enforcement against digital platforms, including an investigation of Facebook and a “comprehensive audit” of the social media advertising market. Invoking existing “legislative tools” such as privacy laws, data protection legislation, and antitrust and competition law, the report cautioned: “The big tech companies must not be allowed to expand exponentially, without constraint or proper regulatory oversight.”

Operating under an international patchwork of competition approaches can present a challenge to global enterprises. Technology-focused, data-intensive businesses should consider seeking antitrust counsel to monitor developing competition trends and implications across jurisdictions.

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[1] Verizon Communic’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407-08 (2004).

[2] The preliminary report finds that Google has market power in online search, online search advertising and news media referral services, and that Facebook has market power in social media services, display advertising and news media referral services.

A Boiling Frog? Merger Enforcement of Early-Stage Tech Companies

Fable has it that a frog placed in tepid water slowly brought to a boil will not perceive danger until it is too late to leap. According to some critics, U.S. high tech merger review has a similar problem insofar as it fails to adequately consider and challenge acquisitions of startups that, on their face, appear to constitute incremental changes to competitive dynamics but that over time may suppress competition. Indeed, a U.S. Federal Trade Commission (FTC) official confirmed last week that the agency faces “withering criticism of antitrust” and its enforcement with respect to competitor acquisitions of startup companies.

The comments were made during a conference in San Francisco by Michael Moiseyev, Assistant Director of the FTC’s Bureau of Competition and a leading enforcer with responsibility for merger and acquisition review. Without identifying particular transactions, he acknowledged that players in the venture capital (VC) space have characterized the U.S. antitrust agencies as “snookered” in permitting certain early-stage companies to be acquired.

Making the case that an existing competitor’s acquisition of a nascent, potential rival poses “a substantial lessening of competition” (Clayton Act, § 7) is a high hurdle for the U.S. agencies to clear. Mr. Moiseyev assessed the state of current case law as both “terrible” and “unforgiving.” The agency’s most recent challenge invoking a potential competition theory resulted in a district court concluding that the FTC had failed to provide evidence the target would have launched a new, competing technology. FTC v. Steris Corp., No. 1:2015cv01080 (N.D. Ohio 2015). In that matter, the FTC had sued and invoked the theory that the target, if it were not acquired, was poised to create “actual potential competition” for the U.S. market leader by importing technology currently offered by just one European facility. The merging parties undermined that theory by demonstrating a dearth of customer commitment to using the would-be-imported technology.

Yet criticism of a perceived lack of U.S. agency challenges in the tech sector continues to mount.

Under this pressure, will the U.S. agencies take a fresh lens to acquisitions of new and innovative competitors? The key analytical question is how to evaluate whether those companies would evolve to constrain actual, current competition. This fall, the FTC’s ongoing policy hearings devoted a day to acquisitions of potential competitors in tech markets. Nearly all participants endorsed studies of the effects of past transactions via merger retrospectives. Several panelists advised that the agencies scrutinize more closely transactions involving dominant platforms and whether the underlying deal removes a nascent competitive threat. Other participants in the hearings emphasized that the competitive analysis should focus on harms to innovation but that an information imbalance at times constrains the agencies’ ability to assess emerging industry developments.

We do not know whether a boiling frog is in our midst. Nevertheless, if you are advising VCs or a company that is considering an acquisition involving an innovative, new or potential competitor, reach out to antitrust counsel to consult on these issues.

Know Your Investors – Their Holdings and Board Seats Can Create Antitrust Risk for Your Company

A recent divesture ordered by the Federal Trade Commission should serve as a reminder that private equity- and venture capital-backed companies need to evaluate the other holdings of their investors and directors to avoid potential antitrust problems.

Background

Red Ventures and Bankrate are marketing companies that connect consumers with providers in various industries. In 2017, Red Ventures entered into an agreement to acquire Bankrate for $1.4 billion. Among other interests, Bankrate operated “Caring.com,” a website used to generate customer leads for providers of senior living facilities. Red Ventures did not offer a competing product in this space, but the FTC nonetheless required the divestiture of Caring.com, citing competitive concerns generated by operations of Red Ventures’ investors and directors.

Specifically, two of the largest shareholders in Red Ventures are private equity firms General Atlantic and Silver Lake Partners, with a combined 34 percent stake, two of seven board seats, and other substantial rights over operations. General Atlantic and Silver Lake separately owned “A Place for Mom” which, like Caring.com, provides an online referral service for providers of senior living facilities. According to the FTC’s complaint, “A Place for Mom” and “Caring.com” were each other’s closest competitors, with the number one and number two positions in the market. Here, the FTC looked behind the actual parties to the transaction to identify potential competitive concerns.

Takeaways

Private equity- and venture capital-backed companies must be aware of the competitive, or potentially competitive, holdings of their investors and directors.

  • As in the Red Ventures/Bankrate acquisition, the separate holdings of significant investors may become a focus of the government’s antitrust review of a transaction.
  • An investor simultaneously holding seats on the boards of two competing companies may violate the statute prohibiting interlocking directorates.[1]
  • Finally, companies should ensure that protections are in place to prevent any scenario – real or implied – where the investor or director could serve as a conduit for the sharing of competitively sensitive information between competing companies.[2]

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[1] See 15 USC § 19.

[2] See 15 USC § 1.

FTC Kicks Off Hearings on Competition and Consumer Protection in the 21st Century

Antitrust policy, once relegated to wonk status, has taken center stage in recent years: it seems as if each day there is a new debate over the need – or lack thereof – for more robust competition enforcement in today’s economy. In the past few weeks alone, competition law and big tech have been in the spotlight in both a call to reopen a Federal Trade Commission (“FTC” or “Commission”) investigation into Google and a forthcoming meeting among Attorney General Jeff Sessions, state Attorneys General investigating social media companies and a representative from the Department of Justice’s Antitrust Division (“DOJ”).

The FTC jumped into the fray on September 13, 2018 when it kicked off its hearings on Competition and Consumer Protection in the 21st Century, which had been announced earlier this year. The purpose of the hearings is to utilize the agency’s Section 6 authority “to consider whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection law, enforcement priorities, and policy.” Among the announced topics are issues that have dominated the news lately, including: competition in technology markets, particularly those featuring two-sided “platform” businesses (ones that cannot make a sale to one side of the market without simultaneously making a sale to the other); the intersection of privacy, data and competition; evaluating the competitive effects of vertical mergers (those that join firms at different levels of the supply chain, e.g., the AT&T-Time Warner deal challenged unsuccessfully by DOJ); and the consumer welfare standard, which has served as the economic principle guiding antitrust enforcement since the 1980s. The FTC has accepted more than 500 public comments on 20 announced topics and continues to invite public comment in advance of specific hearing sessions.

Commission Chairman Joe Simons set the stage for the opening session by highlighting the combination of increased economic concentration and decreased antitrust enforcement that has generated calls to reassess the very nature of antitrust policy, noting that he is approaching the discussions “with a very open mind.”

The panel discussions that followed the opening session focused on the current landscape of competition and consumer protection law and policy, concentration and competitiveness in the U.S. economy, and the regulation of consumer data. Key takeaways so far include:

  • The Commission is eager to set competition enforcement priorities. Tech companies appear to be in the crosshairs.
  • Although there is growing concern about increased concentration in the economy, there is no consensus that big equates to bad. While some panelists cited data linking concentration to income inequality and reduced innovation, others cautioned that protecting less efficient businesses in the name of competition is misguided.
  • Effective privacy and data breach enforcement likely require new, modern tools both for detection and regulation. The FTC’s consumer protection mission likely will need to account for changes in federal legislation and/or voluntary rules established by the tech industry.

Videos of past hearing sessions are available online, along with public comments and additional information.

The FTC’s end goal is to produce one or more policy papers, patterned after the fruits of the 1995 hearings hosted by then-FTC Chairman Robert Pitofsky. Those hearings, which focused on global competition and innovation, led to two staff reports on competition and consumer protection policy “in the new high-tech, global marketplace” and helped pave the way for U.S. agency actions blocking mergers primarily based on harms to innovation. The Commission once again is revisiting its approach.

In the interim, stay tuned for additional updates as the hearings continue.

European Crackdown on Violations of Merger Control Procedural Rules Continues

Last year on this Blog we wrote about the uptick in enforcement action by European competition authorities against violations of merger control procedure (see here).

Yesterday, the UK Competition and Markets Authority (“CMA”) indicated that this trend is set to continue, issuing a fine of £100,000 for a breach of an Interim Order imposed on Electro Rent in its acquisition of Microlease. This is the first time the CMA has fined a company for such a procedural breach.

On the face of it, the fine seems harsh given that the relevant action – serving notice of termination of a lease without the CMA’s prior consent – was discussed with the appointed Monitoring Trustee prior to coming into effect.[1] Indeed, the European Court of Justice (“ECJ”) recently confirmed that parties may take certain actions without violating the standstill obligation imposed under the EU Merger Regulation – including terminating agreements – where such actions do not contribute to the implementation of a transaction.[2] In doing so, the ECJ’s ruling confirmed the commonly held view that merging parties are permitted to take certain steps allowing them to prepare for implementation of a transaction without violating merger control procedural rules.

Given the developing case law on standstill obligations, companies involved in M&A will need to revisit pre-completion protocols, noting that the EU approach seems to be diverging from the CMA’s somewhat more rigid approach to merger control. READ MORE

CMA Launches Consultation Concerning Changes to its Jurisdiction over M&A in the Tech Sector

The UK government considers that transactions in the following sectors can raise national security concerns:

1. quantum technology;
2. computing hardware; and
3. the development or production of items for military or military and civilian use.

In order to allow the UK’s Secretary of State to intervene in transactions in these sectors, the UK government has proposed amendments to the Enterprise Act 2002 that would expand the Competition & Markets Authority’s (“CMA”) jurisdiction to review transactions in these sectors from a competition perspective. READ MORE

Stock Compensation May Trigger HSR Filing

The requirements of the Hart-Scott-Rodino (“HSR”) Act and Rules are well known to companies that engage in significant M&A transactions. But less well known is their applicability to acquisitions of stock by individuals as part of compensation practices. Especially where relatively young and successful companies are involved, HSR obligations may unexpectedly arise where equity compensation is given to founders, board members, executives, and other employees (whom we will group together and call “Insiders”). Companies and individuals potentially caught in the HSR process for this reason should ensure they are aware of the trigger rules, as a failure to file can result in significant fines.
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Don’t Hold Back: FTC Offers New Guidance on HSR Filing Obligations

As discussed previously on this blog, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires parties to certain proposed transactions to submit detailed premerger notification filings and wait for clearance before consummating the deal. To facilitate the antitrust review, merging companies that meet the HSR thresholds are required to submit a wealth of information about their businesses and the proposed transaction, including annual reports, market analyses, and agreements and other documents bearing on the deal. Despite these broad requirements, the FTC found that some merging companies were withholding side agreements relevant to the antitrust review process on the theory that they were ancillary to the main agreement and/or protected by a common interest privilege or joint defense agreement. READ MORE

Antitrust Analysis of Joint Ventures: How Big Is Too Big?

In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues.  In the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether a JV is a legitimate collaboration.  The third post in the series discussed ancillary restraints–what they are and how they are analyzed. READ MORE

Gun-Jumping Continues To Be Serious Infringement in EU

Like many other merger control regimes, the EU merger control regulation (Regulation No. 139/2004, hereinafter “EUMR”) imposes certain obligations on parties to mergers and acquisitions that come under the jurisdiction of the European Commission. In particular, a transaction must be notified to the Commission prior to its implementation, and the parties must not implement the transaction until it has been cleared by the Commission. Failure to comply with the notification or the “standstill” obligations may result in a fine of up to 10% of the worldwide group turnover for each party. READ MORE

Getting in Sync with HSR Timing Considerations

Word 'M&A' of the yellow square pixels on a black matrix background. Mergers and acquisitions concept. Getting in Sync with HSR Timing Considerations

A common question for companies contemplating mergers or acquisitions is how the Hart-Scott-Rodino process works and how long it takes for different kinds of transactions to be reviewed and cleared. The FTC posted a helpful article here today which provides practitioners with guidance regarding timing parameters under the HSR Act, including a helpful HSR timeline graph which can be accessed here.

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European Competition Authorities Crack Down on Violations of Merger Control Procedural Rules

Is a wind of change blowing through the European merger control enforcement landscape?

The response is yes, certainly.

Very recent cases or investigations launched by the European Commission alleging potential violations of merger control procedural rules by notifying parties have sent a clear signal to companies: you’d now better think twice before breaking the merger control procedural rules.

It is even truer when one considers that this may well be a trend throughout Europe. These cases have echoed back to recent similar cases, pending or closed, at the member state level (the Altice case in France, the CEE Holding Group limited/ Olympic International Holdings Limited case in Hungary, the AB Kauno Grudai / AB Vievio Paukstynas case in Lithuania, and a very recent bakery case in Slovakia). READ MORE

Antitrust Analysis of Joint Ventures: Ancillary Restraints

In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. This third post in the series discusses ancillary restraints—what they are and how they are analyzed. READ MORE

New Merger Filing Thresholds In Germany and Austria

Merger Acquisition Antitrust

Merger notification obligations are changing in Germany and Austria, as new alternative jurisdictional thresholds based on the “transaction value” are being introduced into the respective national regimes, previously solely based on turnover thresholds.

Germany

In Germany, the introduction of a new set of alternative thresholds was approved by both chambers of Parliament and will enter into force upon the (imminent) signature by the Federal President.

Even though the new thresholds are being introduced with a view to better control acquisitions of Internet startups, they apply regardless of the economic sector to any high-valued acquisition of undertakings that have a “significant” presence in Germany. READ MORE

Antitrust Analysis of Joint Ventures: Structural Considerations

Businessman hand touching JOINT VENTURE sign with businesspeople icon network on virtual screen Antitrust Analysis of Joint Ventures Antitrust Analysis of Joint Ventures – Structural Considerations

In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In this installment, we will unpack some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration.  In particular, we will first try to separate the analyses of, on the one hand, JV formation, and on the other, JV operation and structure.  Then we will consider whether a JV (i) constitutes a “naked” agreement between or among competitors which is per se unlawful, (ii) presents no significant antitrust issue because there is only a single, integrated entity performing the JV functions, or (iii) involves restraints within the scope of a legitimate collaboration that are virtually per se lawful.

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Makan Delrahim Likely to Follow Conservative Path at DOJ Antitrust Division

Headshot of Delrahim Makan in front of the U.S. Captiol Makan Delrahim Likely to Follow Conservative Path as Chief of DOJ Antitrust Division

Last week, President Trump nominated Makan Delrahim to serve as the Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice. Mr. Delrahim, who is currently serving as White House Deputy Counsel, is a former lobbyist and veteran of the George W. Bush Justice Department.  He served as Deputy Assistant Attorney General for International from 2003–2005.  Mr. Delrahim had a good working relationship with the career staff who he will now rely upon to advance the Trump Administration’s antitrust enforcement agenda and priorities.

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