Friday, August 28, 2015
The JLEO has a new paper, Merger Remedies in Oligopoly under a Consumer Welfare Standard:
Abstract: We analyze the welfare effects of structural remedies on merger activity in a Cournot oligopoly if the antitrust agency applies a consumer surplus standard. We derive conditions such that otherwise price-increasing mergers become externality-free by the use of remedial divestitures. In this case, the consumer surplus standard ensures that mergers are only implemented if they increase social welfare. If the merging parties can extract the entire surplus from the asset sale, then the socially optimal buyer will be selected under a consumer standard.
Wednesday, April 22, 2015
Friday, January 30, 2015
In local Massachusetts news, a state Superior Court judge refused to approve a consent agreement permitting PartnersHealthcare to close its merger with three smaller hospitals. The transactions had been opposed by the MA Attorney General on grounds that they stifled competition in the healthcare markets in the affected communities. Partners and the AG had reached an agreement to permit the transactions to close under certain conditions. These conditions included a series of regulations on pricing, price caps, and other conduct-based regulations over a ten year period as well as oversight by the Superior Court. When presented with the consent agreement, the court balked. The court refused to approve the agreement for two reasons:
1. The court believed the merger was not in "public interest" as defined by the case law. In the view of the court, the proposed consent agreement did not adequately address the harm alleged by the AG in her complaint, namely that transaction would limit competition in this sector.
2. The court through up its hands when it came to implementation of the consent agreement. The court noted that the agreement was not self-enforcing and that implementation as well as oversight would be complicated. For its part, the court admitted that it was "ill-equipped" to stay abreast of the many rapid changes in the healthcare industry such that the court would be able to adequately oversee implementation of the agreement.
Result, the court refused to sign on. Partners and the AG are left to decide how to move forward, with the AG threatening to take up litigation again in the event Partners decides to close the transaction without its approval.
What's interesting here is that this is an example of a local AG moving to enforce state level anti-competition/antitrust laws in the context of a transaction that has either cleared HSR or was too small to require an HSR filing. It's a reminder that even for small deals, antitrust counsel have important roles early on in the transaction planning process.
Tuesday, October 28, 2014
Last week a number of law professors, led by Dan Sokol, sent a letter to the FCC opposing the Comcast/TimeWarnerCable transaction. You'll remember that this deal requires not only anti-trust approval but also approval of the FCC. In fact, it requires a determination by the FCC that the merger is in the "public interest". The letter takes on a number of Comcast's arguments in favor of the deal, including the "no overlap, no problem" argument, noting that at the extreme this argument leads directly to the conclusion that the FCC should be okay with a single broadband cable provider in the US, which on its face seems absurd.
One thing I had forgotten, but the letter writers correctly focus on: this tie up (Comcast acquiring TimeWarnerCable) involves exactly the same assets (plus more) of a previous deal (AT&T/MediaOne in 2000). The DOJ stepped in and blocked that transaction and blocked it on antitrust grounds. One wonders if the competitive landscape has changed so much since then that this deal is okay. Though there have been some changes to the contours of competition in this space, the basic lay of the land is still the same.
Wednesday, September 10, 2014
After warning yesterday that they might do it, Dollar General has gone hostile this morning with a tender offer at $80/share subject to the following conditions:
(i) at least a majority of the outstanding shares tender,
(ii) termination of the Amended Dollar Tree merger agreement and the voting support agreements,
(iii) entry into a merger agreement with Dollar General (in form and substance satisfactory to Dollar General in its reasonable discretion), including a second step 251(h) short form merger,
(iv) entry into definitive tender and support agreements by certain Family Dollar shareholders,
(v) approval of the transaction under Section 203,
(vi) redemption of the Family Dollar Board poison pill, and
(vii) approval by antitrust authorities.
All those reasonable questions that the Faily Dollar board has about the Dollar General bid are still out there. Only now, Dollar General is going straight to the shareholders and asking them to make the decision. Family Dollar does not have a staggered board so, in effect, the scheduled Family Dollar shareholder meeting that will be called this fall to vote yes/no on the Dollar Tree offer should be the referendum on the pair of transactions. Between now and then, expect quite a bit of noise on both sides as they each make their case.
Tuesday, September 9, 2014
Last week Family Dollar received and then rejected an offering from Dollar General opting, rather, to stick with its deal with Dollar Tree. There is, of course, litigation. The stockholders bringing suit are arguing that the FDO board violated its fiduciary duties to the corporation by agreeing to the deal with Dollar Tree and also when they rejected Dollar Genera's competitive bid. Here's the amended complaint.
So, is the board required to chase the nominally higher Dollar General offer? What do their fiduciary duties require? Remember, in QVC, which is probably the best case for laying out how board actions in the context of a sale of control will be reviewed, the Delaware Supreme Court said:
Although an enhanced scrutiny test involves a review of the reasonableness of the substantive merits of a board's actions, a court should not ignore the complexity of the directors' task in a sale of control. There are many business and financial considerations implicated in investigating and selecting the best value reasonably available. The board of directors is the corporate decisionmaking body best equipped to make these judgments. Accordingly, a court applying enhanced judicial scrutiny should be deciding whether the directors made a reasonable decision, not a perfect decision. If a board selected one of several reasonable alternatives, a court should not second-guess that choice even though it might have decided otherwise or subsequent events may have cast doubt on the board's determination. Thus, courts will not substitute their business judgment for that of the directors, but will determine if the directors' decision was, on balance, within a range of reasonableness.
So, if the board has two reasonable alternatives and it chooses one, the court will not second guess. That leaves a lot of discretion in the hands of the board, even when we are in "Revlon mode". So, in the FDO sale, what are the board's choices? And, are they reasonable ones?
The basic outlines of Dollar General's most recent offer are as follows:
- $80 in cash;
- $500 million reverse termination fee payable if the transaction is block by regulators;
- a commitment to divest itself of up to 1,500 stores should the government so require.
OK, that seems pretty good. Against that FDO has a signed amended merger agreement with the following offer:
-$74.50 in cash and stock
- a 'hell or high water' provision that requires Dollar Tree to "propose ... the sale, divestiture, license, holding separate, and other disposition of ... any and all retail stores and any and all assets ... of Parent and its Subsidiaries ... " as required to secure antitrust approval.
Hmm. Not so cut and dry. On the one hand, you have an offer in hand with near on 100% certainty of closing at this point. Sure, it will face regulatory review, but the buyer has taken all that risk. On the other, you have a nominally higher bid, but a lot of the residual risk that antitrust authorities will stop or significantly hamper the deal is left on the shoulders of the FDO stockholders. Sure, the FDO stockholders get compensated for that risk through the higher price and a reverse termination fee, but is that enough? That depends on your estimates of the probabilty of antitrust authorities putting up a stink if you do the Dollar General deal. And here, reasonable people can disagree.
If people can have a reasonable disagreement about the estimate of probabilities of antitrust enforcement against a deal that has not been accepted, well, then any court reviewing the board's decision will give the board plenty of latitude.
Absent other facts, suggesting other motivations to favor Dollar Tree, the FDO board looks on solid ground. Of course, if Dollar General were to offer up a similar 'hell or high water' provision -- and why not? It says it doesn't believe there is any significant antitrust issue -- well, then that might make it difficult for the FDO board to justify its decision to go with the lower offer as reasonable.
Friday, September 5, 2014
Gauntlet thrown, this morning Family Dollar responded to Dollar General's increased offer in the only way it could (if it wants to say no):
Ed Garden, a Family Dollar director and co-founder and Chief Investment Officer at Trian Fund Management, L.P., a large shareholder of the Company, stated, “We are focused on delivering to Family Dollar shareholders the highest value with certainty, and the Dollar Tree transaction does just that. Dollar Tree has taken the antitrust risk off the table by committing to divest as many stores as necessary to obtain antitrust clearance. We remain fully committed to the Dollar Tree transaction.”
Mr. Garden continued, “Dollar General’s revised proposal, on the other hand, does not eliminate regulatory risk for Family Dollar shareholders. Dollar General has repeatedly stated that antitrust is not a risk, yet they have put forth proposals that require Family Dollar shareholders to bear the ultimate risk. Receiving a reverse breakup fee with an after-tax value of less than $3 a share does virtually nothing to compensate the Family Dollar shareholders for assuming that risk.”
It is true that Dollar General went very far to reduce the real risk of antitrust being a block to getting the deal done, but FDO apparently believes it didn't go far enough. Turns out, absent other evidence, that a determination that Dollar General's improved bid and commitment with respect to antitrust isn't enough is still completely within the purview of the Family Dollar board. They looked at the remaining antitrust risk and figured it wasn't worth the $3/share offered in the reverse break up fee. You may disagree. I may disagree. But, it's not for you or I to say. Consistent with their obligations under Revlon, it's for the FDO board to determine. Of course, it's a very close call and the motivations of the board really matter, but the FDO - by sticking to its message that antitrust risk is critical to them - is hoping to be able to either stave off a Dollar General acquisition or maneuver Dollar General into giving up yet more concessions to alleviate the antitrust risk. You may disagree with the decision, but is the decision unreasonable? Probably not.
If Dollar General isn't willing to revisit its offer, I suppose the next step for Dollar General is to head off to court to try to get an injunction to prevent FDO shareholders from voting on the Dollar Tree deal. That's a tough road to hoe, but absent going all in on antitrust or another price increase, it's probably one of the few cards left for Dollar General to play here.
Tuesday, September 2, 2014
The Family Dollar board may have boxed itself in. In July it agreed to a transaction with Dollar Tree for $74.50 in cash and stock. Dollar General - having previously expressed an interest in acquiring Family Dollar - lobbed in a bid for the company for $78.50 in cash and a committment to divest itself of up to 700 stores. At this point, Family Dollar's board actions are all going to be reviewed under Revlon, so it had to be careful in how it treated Dollar General's bid. The board rejected the bid and explained that it did so because of antitrust risk:
In negotiating the merger agreement with Dollar Tree, the Family Dollar Board ensured that the agreement permits the Board, consistent with its fiduciary duties, to negotiate with, provide due diligence materials to, and even terminate the merger agreement to enter into a new agreement with, a competing bidder. However, as is customary, the Board may commence negotiations and due diligence access only if, among other factors, the Board determines that a proposal from a competing bidder is reasonably expected to lead to a superior proposal that “is reasonably likely to be completed on the terms proposed.” The Family Dollar Board, after consultation with its financial and legal advisors who have conducted an extensive antitrust analysis, determined that the Dollar General proposal fails to satisfy this requirement. The Board’s decision follows the unanimous recommendation of a committee of four non-management independent directors that has been overseeing the Company’s consideration and exploration of strategic alternatives since January 2014. This committee consists of Glenn A. Eisenberg; Ed Garden; George R. Mahoney, Jr.; and Harvey Morgan.
Howard R. Levine, Chairman and CEO of Family Dollar, stated, “Our Board of Directors, with the assistance of outside advisors and consultants, has been carefully analyzing the antitrust issues in a potential combination with Dollar General since the beginning of this year, as detailed in the Company’s preliminary proxy statement that was filed by Dollar Tree with the SEC on August 11. Our Board reviewed, with our advisors, all aspects of Dollar General’s proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed. Accordingly, our Board rejects Dollar General’s proposal and reaffirms its support for the pending merger with Dollar Tree.”
Mr. Levine continued, “I would also like to note that Dollar General’s letter, sent late last night, contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General’s proposal.”
Ball in Dollar General's court. Well, Dollar General just hit the ball back. It raised it's bid to $80 in cash plus a $500 million reverse termination fee payable if the transaction is block by regulators and a commitment to divest itself of up to 1,500 stores should the government so require. In structuring its bid this way, Dollar General appear intent on taking away arguments from the Family Dollar board.
Observers have suggested that the Family Dollar arguments about antitrust were just a pretext and that the real reason for preferring the Dollar Tree offer over any deal with Dollar General was that Family Dollar management wanted to remain in place. Of course, when Revlon is the standard, such considerations are not permissible. So, we shall see what's up as Dollar General tries to smoke out the Family Dollar board.
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