Friday, August 22, 2014
Berkshire Hathaway reminds us that HSR can be tricky business. They just agreed to pay close to $900k in fines to settle a lawsuit from the DOJ in connection with a transaction in which Berkshire converted some notes before cashing out of a stock. The NY Times describes the transaction:
Behind Berkshire’s violation was an old investment in USG, a producer of construction materials like drywall. In 2006, Mr. Buffett’s company owned about 19 percent of USG. Two years later, Berkshire bought $300 million worth of securities known as convertible notes, which allowed the conglomerate to swap out for common stock in the materials maker at a price of $11.40 a share.
Late last year, USG said it would redeem $325 million worth of convertible notes, and Berkshire took advantage by cashing out its holdings, taking its stake up to 26 percent. Yet Berkshire did not file for Hart-Scott before exercising its right to trade in the convertible notes.
Remember for purposes HSR,covered transactions are defined very broadly. This broad definition can trip up even the most sophisticated investors - like Berkshire Hathaway or even Barry Diller last year.
Wednesday, May 28, 2014
Friday, April 25, 2014
In January I noted that a federal district court in San Francisco ruled that Bazaarvoice had violated the Clayton Act when it acquired its chief competitor, PowerReviews. At the time, I misinterpreted the ruling and thought it meant that court had held that Bazaarvoice was ordered to divest itself of PowerReviews. I quickly received an email from a PR hack at Bazaarvoice asking me to correct the record, which I did. The January ruling simply found that Bazaarvoice had violated the antitrust laws but did not go so far as to resolve the question of remedy, which could eventually include divestiture of PowerReviews.
OK, so today Bazaarvoice has agreed to divest itself of PowerReviews and pay $222,000 to cover the US government's litigation costs - government lawyers are cheap. Bazaarvoice has to bear its own costs, which I suspect are higher. Here is the proposed stipulation and order and here is the proposed final judgment.
Remember that the PowerReviews acquisition did not trigger an automatic HSR filing, but the lack of a filing requirement does not mean one is exempt from antitrust enforcement. Just ask Bazaarvoice.
Tuesday, April 22, 2014
If it wasn't already obvious to you we live in a global economy in which almost all deals of any significant size will have global regulatory implications. Take for example, Microsoft's pending acquisition of the Nokia handset business announced last fall. It's expected to close this week after facing significant and real opposition from both the Korea Fair Trade Commission and China's MOFCOM:
Aware of a possible backlash from local companies, the Chinese Ministry of Commerce approved Microsoft’s purchase of Nokia on April 8, with certain conditions, saying, “Microsoft and Nokia’s patents could limit competition in the local smartphone market.” In light of the Chinese government’s decision, the Korean regulatory body is more likely to follow suit. In fact, the body is said to be considering granting conditional approval to the business consolidation, and finalizing its standards for approval.
Think about that - an American company buys a division of a Finnish company and the Korean as well as Chinese regulators (among many others) weigh in. Again, for those who are paying attention - sure that's the world we live in. But, it's another reminder about how any real M&A lawyer has to be about much more than just the document. You have to be aware of how the deal will play out at 35,000 feet, not just in the home market but in other markets as well.
Thursday, April 17, 2014
You may have already seen this story involving the Glencore/Xstrata merger.
The merger of Glencore and Xstrata created the world’s fourth-largest mining company and largest commodities trader when it was finalized last year. But as a condition of the deal, the firms had to secure the blessing of regulators in the major markets in which they operate, including China.
So far, so good. A large merger like this is likely to have antitrust implications in China, so no surprise that the 20-odd people in MOFCOM assigned to pre-merger review and approval would give this transaction a look before it closes. The odd part? What happened next. According to multiple sources, the transaction was approved conditioned on the divesture of the Las Bambas copper mine in Peru. The purchaser was China Minmetals:
Sunday's acquisition is the largest Chinese purchase of an overseas mining asset since state-owned Aluminum Corp. of China, or Chinalco, took a 12% stake in Anglo-Australian mining company Rio Tinto PLC for $14 billion in 2008, according to Dealogic.
Like that purchase, this latest deal gives China greater control of the raw materials its industries crave. The country Like that purchase, this latest deal gives greater control of the raw materials its industries crave. The country accounts for roughly 40% of global copper demand. Las Bambas is expected to produce 460,000 metric tons of copper concentrate annually over the next 10 years, according to projections by Glencore.
Sure, the price for the asset was high. So, shareholders of Glencore/Xstrata don't really have much to complain about, but what is disconcerting is that China's pre-merger approval process would be used not just to address antitrust problems brought on by the deal, but to also advance other national priorities - like securing access to raw materials. To the extent China finds antitrust review to be a convenient tool for this kind of thing, it reduces confidence in the regulatory process -- hey, stop laughing in the back row, I'm trying to make a point -- and without that confidence, it's hard to imagine developing a robust regulatory structure when it is serving multiple masters.
Tuesday, February 18, 2014
It's no surprise that the proposed Comcast-TWC merger raises questions about consolidation in the cable business. But it's hard to say that there are any simple answers. The issues that are raising some of the loudest concerns stem from the fact that this merger will be a merger of number 1 and number 2 in a business where there are only really 5 significant players left. In all seriousness, questions about the consolidation of the cable business and that issue left the station years ago. A couple of decades ago there were hundreds of cable businesses in the country. Through subscriber swaps and consolidation smaller systems we have seen the sector get more and more consolidated over time.
That's not likely going to change anytime soon, if ever. Ideally, consumers would benefit from increased competition for the last mile. We're not going to get that from this transaction. In fact, to the extent there was marginal competition for franchises along the edges of the consolidated territory, that competition is going away. The potential for competition for the last mile is really muted. Verizon has largely given up any hopes of expanding its current base. Satellite is a poor second choice, really ideally suited for the hard to serve rural areas that cable systems aren't really interested in. Overbuilders? They exist, but they are will forever be, niche players.
So, if consolidation is the way things are going to be, why not more regulation of this natural monopoly? Perhaps regulation of natural monopolies is out of fashion. That's unfortunate. Consoldidation without regulation may be responsible in part for why we pay so much for the service we have.
Other issues that get raised by this particular transaction is the tendancy of the cable providers to consolidate vertically as well as horizontally. As consolidated cable moves up the chain to control content as well as the pipes there are serious questions about access that are raised. The deal Comcast reached with the government when it purchased NBC Universal last year to treat content fairly is good, but the cable providers still face the economic incentives to shift content whenver they can to their favored providers.
In any event, perhaps Leo Hindery is correct and that when asked, this transaction will sail through the regulatory process. Perhaps. But there are more questions than easy answers with this transaction.
Update: Felix Salmon thinks broadband access in the US blows...and is expensive to boot.
Thursday, January 30, 2014
According to the NYTimes, William Baer threw cold water on the prospects of a wireless merger between Sprint and T-Mobile:
“It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,” he said, without referring to any specific merger proposal. “Any proposed transaction would get a very hard look from the antitrust division.”
Ditto for any potential Charter-Time Warner Cable deal. In the current environment, getting either of those deals past antitrust authorities will be a long, hard pull.
Monday, January 27, 2014
Two recent cases provide examples of the Obama administration's aggressive antitrust policy. Unlike the previous administration, almost from day one the Obama administration has been more likely to pursue transactions post-closing for antitrust violations. In the first of the two, the FTC won a victory in a Federal Court in the district of Idaho:
Idaho's largest hospital chain and physician group must unwind their merger, a federal judge ruled, siding with U.S. regulators seeking to broaden antitrust enforcement in health-care acquisitions.
The combination of St. Luke’s Health System Ltd. and the Saltzer Medical Group would raise prices for consumers even though it would improve patient care, U.S. District Judge B. Lynn Winmill in Boise, Idaho said today, ruling in a pair of cases brought by the Federal Trade Commission and local hospitals.
In the second case, the DOJ was able to work out a settlement with Heraeus Electro-Nite LLC that will require it to divest itself of certain assets it acquired from Midwest Instrument Company. Both companies manufactured measurement technologies critical in steel manufacturing.
In both cases the transactions giving rise to the government's antitrust investigations were below the HSR filing thresholds, so pre-closing merger clearance was not required. But, as we are learning, just because your deal may not trigger filing requirements, it doesn't mean that the government won't seek divestiture remedies, including "unscrambling the eggs" in the event the government believes the transaction is anticompetitive.
Monday, January 13, 2014
See update below.
Following BazaarVoice's acquisition of PowerReview in June 2012, the DOJ started an antitrust investigation. The BazaarVoice's acquisiton fell below the HSR size of person/size of transaction test so it wasn't subject to HSR premerger filing requirements.
Not being required to make HSR filings, of course, is not the same as being exempt from the antitrust laws. Turns out, no one (other than perhaps Major League Baseball) is exempt from the antitrust laws. The BazaarVoice litigation that was decided by a district court judge in San Francisco last week is another example of the Feds looking back at completed transactions for the anticompetitive effects. Last week in BazaarVoice, the DOJ was able to secure an order from the court to undo the transaction (BazaarVoice Opinion).
Though the remedy is extreme, it shouldn't really be a surprise. Why? Here's how the folks at BazaarVoice internally described the benefits of the acquisition of PowerReview:
"Eliminate [Bazaarvoice's] primary competitor and provide relief from ... price erosion."
Hmm. Eliminating your primary competitor and stopping price erosion. Sounds good to the business types, but to deal lawyers that should sound like fingernails on a chalkboard. But it gets worse...
Collins, then BazaarVoice's CFO suggested that ... BazaarVoice could either compete against PowerReviews and "crush" them, or dammit lets just buy them now"
Buying your primary competior to eliminate competition? Bad. Turns out when you buy your primary competitor, reduce competition and generate larger margins for yourself as a result, the DOJ takes notice, even if you weren't required to make an HSR filing.
Following the transaction, the anticompetitive effects of the deal were obvious to the court, and the DOJ got its order to unscramble the eggs. You can download the District Court's BazaarVoice Opinion here.
Update: OK, so apologies to those involved, the Court has not yet ordered the taking apart of the deal. What it has done is found that BazaarVoice violated Section 7 of the Clayton Act and has ordered the parties back on January 22, 2014 to discuss what remedy is appropriate. Clearly, unscrambling the eggs is one possible remedy, but there may be others acceptable to the government and BazaarVoice. Here's BazaarVoice's Press Release related to the court's decision.
Tuesday, December 3, 2013
AMR and US Air recently settled the lawsuit brought against them by the DOJ's antitrust division. The DOJ was using litigation to prevent the proposed merger of the two airline giants. As the two sides stood staring across at each other, one side sent a letter offering up a settlement. Here's the tick-tock of how the settlement of that antitrust litigation went down.
Tuesday, October 1, 2013
Ok, so the impacts of this 'shutdownado' are far and wide and sometimes a little unpredictable. As you probably know, the DOJ has been challenging the American Airlines/US Air merger on antitrust grounds in court. The trial is set to start on Nov. 25. Now, though, the DOJ is seeking stay during the government shutdown because government lawyers won't be available to prepare their case:
Absent an appropriation, the Department of Justice attorneys and employees are generally prohibited from working, even on a voluntary basis.
Not the worst thing in the world, I suppose. But, judges are still working and getting paid, though (thanks to their permanent appropriation). Somehow, the SEC is operational according to an announcement of the SEC's site. PCAOB is open because, well, it's not really a Federal agency (I know, there's a constitutional question there). FINRA is still open for business; it's an SRO afterall. But, the big news? That's right. BC's football game against Army this weekend might cancelled/postponed because of the 'shutdownado.' What?!
Hmm. Hey Congress! You suck!
Thursday, August 29, 2013
Here's a quick heads up for anyone in the DC area - the ABA's Antitrust Section will be sponsoring a Merger Practice Workshop. Looks like an interesting day. Information and registration link below:
Merger Practice Workshop -- September 12, 2013
George Washington University, Washington, D.C.
What really happens in merger reviews? Find out at the Antitrust Section’s new Merger Practice Workshop in Washington, D.C., on September 12. This is a demonstration-based program, and will take you through the life cycle of a hypothetical merger involving a leading social networking site (“Friendstop”) and a leading local listings website (“Hiplisting”). The one-day program will cover all phases of the merger process, including:
• pre-signing antitrust counseling
• negotiating regulatory deal covenants
• coordinating international competition filings
• second request compliance
• advocacy to competition authorities
• negotiating remedies and consent decrees
The Merger Practice Workshop will be a great opportunity to gain deep practical insights into the merger review process from some of the most experienced practitioners in the government (both FTC and DOJ), corporate and private practice sectors.
For more information and to register, please use this link: http://ambar.org/atmergers
Friday, June 28, 2013
The DOJ recently announced a $720,000 civil penalty against Macandrews & Forbes Holdings for violating premerger notice and waiting requirements under the Hart-Scott Rodino Act related to its acquisition of Scientific Games in June 2012. This is the second time in as many weeks that MAF has settled up penalties with the feds.
Monday, April 8, 2013
According to Davis Polk, MOFCOM in China is looking to simplify pre-merger review for a large class of relatively "simple" (read small) transactions.
The draft regulation – which is not dissimilar to draft proposals recently announced by the European Commission – designates as “simple” three (arguably narrow) cases premised upon the merging parties having low market share post-merger:
- Horizontal mergers in which the parties together have under 15% share in a relevant market;
- Vertical mergers in which the parties have (a) a vertical relationship, and (b) under 25% share in the “vertical market”; and
- Mergers where the parties (a) do not have a vertical relationship, and (b) have under 25% share in all markets.
While in the US we use transaction size as the cut-off for initial review, the Chinese will be using market share. Transaction size tests are arguably simpler to enforce and simpler for parties to get their head around. On the other, market share tests will ensure plenty of work for lawyers.
Thursday, March 14, 2013
The antitrust action in the Federal district court in Massachusetts against the private equity industry is back in the headlines. We looked at this last after the New York Times successful motion to unseal the complaint against the industry. In response to a motion for summary judgment, Judge Edward Harrington permitted the lawsuit to survive the motion in part, but narrowed it in important ways. The case deals with two claims. First, there is a specific claim with respecet to the HCA transaction. In that allegation, the plaintiffs claim that there was an agreement for other PE firm to step down from competing for HCA. In the second claim, plaintiffs allege an industry-wide conspiracy not to compete in post-signing auctions for sellers.
In the 38 page_order (which includes more PE email excerpts), Judge Harrington made some useful observations about the use of deal protections and the private equity industry and the plaintiffs allegations. Judge Harrington summarized the plaintiff's allegations of clubbing in the following way:
Plaintiffs assert the rules to be as follows: First, Defendants formed bidding clubs or consortiums, whereby they would band together to put forth a single bid for a Target Company. The Plaintiffs assert that the purpose of these bidding clubs was to reduce the already limited number of private equity firms who could compete and to allow multiple Defendants to participate in one deal, thereby ensuring that every Defendant got a “piece of the action.” Second, Defendants monitored and enforced their conspiracy through “quid pro quos” (or the exchange of deals) and, in the instances where rules were broken, threatening retaliatory action such as mounting competition against the offending conspirator’s deals. Third, to the extent the Target Company set up an auction, Defendants did their best to manipulate the outcome by agreeing, for example, to give a piece of the company to the losing bidders. Fourth, Defendants refused to “jump” (or compete for) each other’s proprietary deals during the “go shop” period. This gave Defendants the comfort to know they could negotiate their acquisitions without the risk of competitive bidding.
For the most cynical observers in the pile, this is a pretty good description of the way private equity goes about its business and suggests a conspiracy or at least an industry custom of not competing in post-signing auctions. With respect to the HCA transaction, the plaintiffs allegations were enough to survive at this very early stage (which is deferential to the plaintiffs):
While some groups of transactions and Defendants can be connected by “quid pro quo” arrangements, correspondence, or prior working relationships, there is little evidence in the record suggesting that any single interaction was the result of a larger scheme. Furthermore, unlike other cases where an overarching conspiracy was found, here there is no single Defendant that was involved in every transaction or other indication that the transactions were interdependent.
When pressed at the second day of oral argument for the evidence supporting the “larger picture,” the Plaintiffs largely abandoned the above arguments to focus on the following statement by a TPG executive regarding the Freescale transaction, a proprietary deal: “KKR has agreed not to jump our deal since no one in private equity ever jumps an announced deal.” Plaintiffs contend that this statement, in combination with the fact that Defendants never “jumped” a deal during the “go-shop” period, as well other statements such as the Goldman Sachs executive’s observation that “club etiquette prevail[ed],” with respect to the Freescale transaction, provides a permissible inference of an overarching conspiracy.
The statement that “no one in private equity ever jumps an announced deal” and the fact that no announced deals for the propriety transactions at issue were ever “jumped,” tends to show that such conduct was the practice in the industry. On its own, these two pieces of evidence would be insufficient to provide a permissible inference of an overarching conspiracy. They do not tend to exclude the possibility that each Defendant independently decided not to pursue other Defendants’ proprietary deals because, for instance, a pursuit of such deals was generally futile due to matching rights.
When viewed in combination with the Goldman Sachs executive’s statement and in the light most favorable to the Plaintiffs, however, the evidence suggests that the practice was not the result of mere independent conduct. Rather, the term “club etiquette” denotes an accepted code of conduct between the Defendants. Taken together, this evidence suggests that, when KKR “stepped down” on the Freescale transaction, it was adhering to some code agreed to by the Defendants not to “jump” announced deals. The Court holds that this evidence tends to exclude the possibility of independent action. Count One may, therefore, proceed solely on an alleged overarching agreement between the Defendants to refrain from “jumping” each other’s announced proprietary deals.
So, the alleged industry etiquette against deal jumping in the specific case of the HCA transaction survives to go to trial. At the same time, the "overarching conspiracy" allegation falls:
Furthermore, the frequent communications, friendly relationships and the “quid pro quo” arrangements between Defendants can be thought of as nothing more than the natural consequences of these partnerships. Defendants that have previously worked together or are currently working together would be expected to communicate with each other and to exchange business opportunities. That is the very nature of a business relationship and a customary practice in any industry. Accordingly, the mere fact that Defendants are bidding together, working together, and communicating with respect to a specific transaction does not tend to exclude the possibility that they are acting independently across the relevant market.
Being friendly with your competitors does not a conspiracy make.
Although it's been narrowed quite a bit, I'm sure this case will continue to generate headlines and attention, especially if more emails come to light.
Update: Ronald Barusch at the WSJ Dealpolitik blog suggests the outcome of the summary judgment motion will push defendants to push hard for a settlement.
Wednesday, January 30, 2013
Today, the EU officially blocked the acquisition of TNT by UPS. Here's the press conference announcing the commission's decision:
UPS and the EU tried - unsuccessfully - to work through the issues:
To address the Commission's concerns, UPS proposed to divest TNT's subsidiaries in the 15 relevant Member States, plus – under certain conditions - TNT's subsidiaries in Spain and Portugal, to further increase the volume of small package express deliveries that would be transferred to the purchaser. UPS also offered access to its air network for 5 years, should the purchaser not be a so-called "integrator".
However, to provide intra-EEA express deliveries from the 17 countries covered by the remedy package, the purchaser would have needed suitable networks or partners in these other countries. This requirement alone severely limited the number of potentially suitable purchasers, casting doubt over the effectiveness of the remedies. To dispel this uncertainty, UPS would have needed to sign a binding agreement with a suitable purchaser before the concentration was implemented. However, UPS did not propose this to the Commission and its last minute attempt to sign such an agreement before the end of the Commission's investigation did not materialise.
Moreover, the Commission had serious doubts as to the ability of the very few potential purchasers that expressed their interest to exercise a sufficient competitive constraint on the merged entity in intra-EEA express delivery markets on the basis of the remedies offered. In particular, a buyer that is not already an integrator would need the ability and incentive to invest in its own air transport solution and to upgrade its ground network in order to become a sufficient competitive threat on the merged entity. Without sufficient volume in express deliveries it is doubtful that such an incentive would exist.
Without EU sign off, UPS had to walk away from the transaction. UPS will now pay TNT a 200 million euro reverse termination fee due to the fact that the transaction was terminated because of a failure of the antitrust condition.
Thursday, November 8, 2012
“Survival of the largest appears to be the message here,” said Scott Turow, Authors Guild president. “Penguin Random House, our first mega-publisher, would have additional negotiating leverage with the bookselling giants, but that leverage would come at a high cost for the literary market and therefore for readers. There are already far too few publishers willing to invest in nonfiction authors, who may require years to research and write histories, biographies, and other works, and in novelists, who may need the help of a substantial publisher to effectively market their books to readers.”
Penguin and Random House are controlled by Pearson and Bertelsmann, respectively. This combination is likely to raise antitrust concerns and that's the obvious target for the Authors Guild message. Of course, consolidation in the book publishing industry is going to happen. There's no standing against that wave. This transaction, though, will present a good test for those who like to define markets. On the one hand, the authors will argue that the market in question is the market for books. Pearson and Bertelsmann will counter that the prevalence of iPad, tablets and eBooks makes a broader market definition a requirement. They're likely to have the winning argument.
Thursday, August 30, 2012
You want to know why the HSR guy down the hall sighs and slumps his shoulders every time you burst into his office with the great news that you just signed a deal to acquire a company with big operations in Brazil? This is why:
Under the legislation, the [Brazilian] antitrust authority known as Cade has said it will take no more than 330 days to review a proposed merger. Previously, companies filed requests to review a deal after an accord had already been closed, allowing operations to be integrated before approval from Cade, which took as long as two years in some cases.
Brazil is proposing to revise its premerger notification system to speed up approvals from two years following closing to 330 days. I guess that's better, but still ... ugh. I don't know if this change is necessarily an improvement. Previously, you had to file post-closing and then let it sit for years -- with the risk that antitrust authorities might require you to 'unscramble the eggs' at some point. Now, you will be required to file within 15 days of signing, but then you have to sit for as long as 330 days (240 days, plus an additional 90 days in "complex" cases), not 30 days like in the US (The Economist).
Wednesday, August 22, 2012
Wednesday, August 15, 2012
In a letter to the FTC, Senators Herb Kohl (D-WI) and Mike Lee (R-UT) come to the defense of audiophiles everywhere. Their letter summarized findings of a hearing by the Subcommittee on Antitrust, Competition Policy, and Consumer Rights on the proposed acquisition of EMI by Universal. They point to the rapid shift in the structure of the music distribution market from CDs to online distribution and caution that the acquisition could potentially be anticompetitive - a combined Universal/EMI controls over 40% of US market share by revenue (and 51 of the 2011 Billboard 100). Sens. Kohl and Lee argue that the strength of a combined Universal/EMI's catalogue could form a bottle-neck in any online distribution and create market power for the combined entity, stifling potential competition and efficiency.
For its part, Universal's CEO told the committee that it would be "insane not to license, develop, make available through as many platforms through as many retailers as possible." I don't know...I seem to remember a time not long ago when all the major record labels were "insane" in precisely that way.
In any event, here's the full text of the letter to the FTC. The ball is in the FTC's court.