April 21, 2010
Revised Horizontal Merger Guidelines
The FTC and the DOJ's Antitrust Division have just released their draft revised horizontal merger guidelines for public comment. The draft is available on the joint FTC/DOJ webpage. These revised guidelines are the result of a series of workshops that the FTC and DOJ conducted in the Fall and Winter. According to the press release major differences between the current and proposed Guidelines are as follows:
- The proposed guidelines clarify that merger analysis does not use a single methodology, but is a fact-specific process through which the agencies use a variety of tools to analyze the evidence to determine whether a merger may substantially lessen competition.
- The proposed guidelines introduce a new section on “Evidence of Adverse Competitive Effects.” This section discusses several categories and sources of evidence that the agencies, in their experience, have found informative in predicting the likely competitive effects of mergers.
- The proposed guidelines explain that market definition is not an end itself or a necessary starting point of merger analysis, but instead a tool that is useful to the extent it illuminates the merger’s likely competitive effects.
- The proposed guidelines provide an updated explanation of the hypothetical monopolist test used to define relevant antitrust markets and how the agencies implement that test in practice.
- The concentration levels that are likely to warrant either further scrutiny or challenge from the agencies are updated in the proposed guidelines.
- The proposed guidelines provide an expanded discussion of how the agencies evaluate unilateral competitive effects, including effects on innovation.
- The proposed guidelines provide an updated section on coordinated effects. They clarify that coordinated effects, like unilateral effects, include conduct not otherwise condemned by the antitrust laws.
- The proposed guidelines provide a simplified discussion of how the agencies evaluate whether entry into the relevant market is so easy that a merger is not likely to enhance market power.
- The proposed guidelines add new sections on powerful buyers, mergers between competing buyers, and partial acquisitions.
April 20, 2010
I've been following the developing battle for control over the UK soccer, I mean, football club Arsenal during the past few months. At last check, US real-estate and sports mogul Stan Kroenke was just a handful of shares (7 shares, apparently) short of being required under the Takeover Panel to make a mandatory bid on all of the outstanding shares of the club. On the other side is Russian steel magnate Alisher Usamanov, holder of 26.3% of Arsenal's stock. He is said to covet the soccer club as a prize. Then there's Lady Bracewell-Smith, holder of 15.9% of Arsenal's shares. She is set to auction off her stake, apparently in a bid to avoid having to decide between Kroenke or Usamanov. So much intrigue.
Now, it becomes more complicated. Kroenke has other sports industry interests, including a 40% share of the St. Louis Rams of the NFL. The Rams majority holder, the Rosenbloom family, has been looking to exit for some time now and recently identified a potential buyer: Urbana, IL auto-parts manufacturer Shahid Khan. Comes word that last week Kroenke exercised his right of first refusal to buy out the balance of the Rams' shares that he doesn't own at the price offered by Khan. This after Kroenke and Khan had negotiated with Kroenke, according to reports, demanding a $50-99 million 'go-away' fee - a payment to prevent him from exercising his ROFR. Now that's hardball! We see rights of first refusal pop up a lot in the context of close company acquisitions. Here Kroenke appears to have tried to use the right to extract additional rents from potential acquirer. That's a little unconventional, but not altogether surprising.
Kroenke's bid for the Rams is complicated by the NFL's cross-ownership rules, which prevent cross-ownership across professional sports of sporting teams outside the owners home markets or in other markets with NFL franchises. Kroenke also has ownership interests in the NHL's Colorado Avalanche and the NBA's Denver Nuggets. In order to complete the Rams purchase, he'll have to seek a waiver of those rules or rid himself of other assets. One report suggests that Kroenke may seek to "sell" the Avalanche and Nuggets to his wife, Ann Walton (of Wal-Mart fame), in order to get around those rules.
And, so what about Arsenal? Presumably, Kroenke's acquisition of the Rams takes Arsenal off the table for the moment. I suppose this might be good news for those in the UK suddenly worried about acquisitions of the UK's most storied brands by big American interests. Then again, it creates an opening for Usamanov.
April 19, 2010
This is "God's Work"?
About a year ago, Lloyd Blankfein tried to burnish Goldman Sachs' post-financial crisis image by arguing in an interview with the Times of London that Goldman was performing God's work by bringing buyers and sellers together to do deals and safeguarding the interests of shareholders. Whatever. Last Friday, the SEC provided a different view when it charged Goldman Sachs with securities fraud. Here's the complaint. The SEC Alleges that Goldman was playing both sides by assisting investor John Paulson in shorting the subprime market (through a CDS on a subprime CDO) on the one hand, and selling those shorted bonds to investors on the other hand. The details of this trade were documented in Gregory Zuckerman's The Greatest Trade Ever, but the SEC's 22 page complaint is a quicker, if not more compelling, read.
Goldman, the SEC alleges, disclosed neither its nor Paulson's role in shorting the same bonds its was selling. Was that lack of disclosure material? I don't know. But, if some Goldman trader called me and in the process of pitching these bonds to me let it drop that one of Goldman's most important institutional investors was shorting the same bonds that they were trying to sell me and that Goldman had arranged the short, I probably wouldn't invest. But, hey, that's just me.
Last Friday, just as fraud charges were released, I opened Michael Lewis' The Big Short. It's a really quick read and after I finished it I picked up the SEC's complaint. Given that I had just finished Lewis' book describing how all this went down - though not at Goldman - the SEC's complaint wasn't all that original. My first thought on all this is that there will be more lawsuits.
Sure, the SEC went after Bernie Madoff, but the Financial Crisis of 2008 was not about Madoff. He was just a symptom. Leverage and the housing bubble were at the center of the crisis. During a rational bubble it becomes a game of who is the last to get off. It's clear that Goldman got off first. With this litigation the SEC is using its enforcement powers to send a message of sorts to Wall Street - that "ripping the faces of your clients" is not the way business should run. That's probably a message that should have been sent many years ago.
In any event, with all that's going on, it should make you happy that you're an M&A lawyer!
Update: Janet Tavakoli on the fraud complaint against Goldman Sachs.