All questions

Merger review

i Significant casesLitigated merger challengesPenguin Random House and Simon & Schuster

In November 2021, the DOJ sued to block book publisher Penguin Random House's proposed acquisition of Simon & Schuster. Interestingly, the DOJ alleged that the merger would harm authors, particularly authors of 'top-selling' books, by diminishing competition for book advances.41 In other words, the government's theory was one of buy-side monopsony rather than the more common sell-side increase in market concentration. The DOJ prevailed in October 2022 after a trial, when the court found that the deal may substantially lessen competition in a market for the US publishing rights to anticipated top-selling books. The parties did not appeal the decision and abandoned their deal. The DOJ's victory is notable in light of the Biden administration's attention to labour issues.

UnitedHealth and Change Healthcare

In this case, the government raised both horizontal and vertical concerns and objected to the parties' proposed divestiture to a private equity firm as a remedy to address an alleged horizontal competitive overlap for health insurance claims editing. The court ruled against the DOJ on both theories. Significantly, the court found that the proposed divestiture would preserve competition for claims editing, demonstrating that a 'fix-it-first' strategy can work in a merger challenge and a private equity fund can be an acceptable divestiture buyer. This is so despite the agencies' increased scepticism towards private equity. The court also rejected the DOJ's vertical theories of harm relating to UnitedHealth's access to rival insurers' data and alleged incentives to withhold certain products from rivals. The government's failure to prove a vertical theory of competitive harm is notable in light of the agencies' increased attention to vertical deals in recent years.

United States Sugar and Imperial Sugar

Also in November 2021, the DOJ filed suit to block United States Sugar from acquiring Imperial Sugar, alleging that the combination of the two sugar refineries would result in a duopoly of refineries in the south-eastern United States and raise prices for refined sugar and products containing sugar.42 Here the court found that the government failed to prove that its alleged market was a proper antitrust market. Much of the court's opinion dealt with whether sugar distributors should be included in the market along with refiners. The DOJ argued that distributors should be excluded because 'they do not produce the refined sugar they are selling', but are instead 'more properly considered customers'. In contrast, the defendants argued that distributors should be included in the market because they are 'competitive sellers of refined sugar'. The court ultimately sided with the defendants. The DOJ appealed, and the Court of Appeals is set to hear arguments in early 2023.

Booz Allen and EverWatch

In this case, which was decided in October 2022, the DOJ alleged that the parties' merger agreement violated Section 1 of the Sherman Act, which prohibits agreements that unreasonably restrain trade, and sought to enjoin the agreement. According to the DOJ, Booz Allen and EverWatch are the only two bidders for a National Security Agency (NSA) contract for OPTIMAL DECISION, a program to provide modelling and simulation for signals intelligence data. The DOJ argued that the parties' merger agreement itself harmed competition because it 'sharply reduced' the defendants' incentives to submit competitive proposals to the NSA given that, because of the merger, 'Booz Allen will ultimately reap the profits no matter which company “wins” the contract'. The court denied the DOJ's injunction request, finding, among other things, that the government did not show actual detrimental effects on competition and that the proposed acquisition 'does not pose a likely or significant risk of anticompetitive harm', citing several reasons why Booz Allen would not implement 'unwarranted price hikes'. Notably, the court also found that a narrow, single-contract market for 'signals intelligence modelling and simulation services under OPTIMAL DECISION' is not a relevant antitrust product market.

Meta Platforms and Within Unlimited

In August 2022, the FTC sued to block the acquisition of Within, a virtual reality studio, by Meta Platforms, alleging that the deal could lessen perceived and actual potential competition in a purported market for VR dedicated fitness apps.43 The FTC lost its bid for a preliminary injunction after a federal court found that the FTC failed to establish that it was likely to succeed on the merits in light of the evidence presented. Nevertheless, the court accepted that, properly proven, actual potential competition or perceived potential competition by an acquirer in the market in which a target operates could be bases for viable claims of harm to competition under Section 7 of the Clayton Act.44

Challenges to consolidation in the provision of healthcareHackensack Meridian Health and Englewood Healthcare Foundation

In another healthcare-related matter, the FTC filed an administrative complaint and a motion for preliminary injunction in federal court in New Jersey to stop the proposed acquisition of Englewood Healthcare Foundation by Hackensack Meridian Health. Here the FTC argues that the acquisition would result in the merged firm controlling half of the inpatient general acute care hospitals in a county in New Jersey and would 'leave insurers with few alternatives for inpatient general acute care services'.45 According to the FTC, if the deal were consummated, the hospitals 'would be able to demand higher rates from insurers for the combined entity's services, which, in turn, may lead to higher insurance premiums, co-pays, deductibles, or other out-of-pocket costs for plan members' and 'the elimination of competition would reduce incentives to improve quality'.46 In August 2021, the court granted the FTC's request for a preliminary injunction and the parties appealed.47 In March 2022, the appeals court affirmed the grant of a preliminary injunction.48

Abandoned healthcare transactions

The FTC sued or threatened to sue to block several hospital mergers, and the parties abandoned these deals in the face of the challenges. Specifically, HCA Healthcare and Steward Health Care System, RWJBarnabas and Saint Peter's Healthcare System, and Lifespan and Care New England Health System all abandoned deals in 2022.49

FTC challenges to consummated transactionsAxon Enterprise and VieVu

The FTC is challenging the combination of Axon and VieVu, two providers of body-worn camera systems for police. In an administrative complaint dated 3 January 2020, the FTC alleged that the acquisition increased market concentration to such a degree that it was presumptively unlawful; and eliminated competition between two companies that were each other's closest competitors.50 This, according to the FTC, 'removed VieVu as a bidder for new contracts and allowed Axon to impose substantial price increases'.51 The complaint also challenged provisions of the merger agreement pursuant to which VieVu's former parent company, Safariland, agreed not to compete with Axon and 'limited solicitation of customers and employees by' that company and Axon.52 The FTC alleged that these provisions 'are not reasonably limited to protect a legitimate business interest'.53 Safariland rescinded these agreements and settled these allegations with the FTC in April 2020; the remainder of the matter is continuing.54

Axon mounted a constitutional challenge to the FTC, seeking to enjoin the FTC's administrative proceeding on the grounds that the structure and certain procedures of the FTC are unconstitutional. A federal court dismissed these claims.55 Axon appealed and the Ninth Circuit affirmed the district court's dismissal.56 However, the appeals court stayed the issuance of its mandate and the Supreme Court granted Axon's petition for certiorari. The high court heard the case in November but has not yet issued a ruling. Meanwhile, the FTC administrative proceeding is stayed.

Altria and JUUL Labs

In an administrative complaint filed on 1 April 2020, the FTC alleges that certain agreements between Altria and JUUL Labs violate Section 1 of the Sherman Act and Section 7 of the Clayton Act. In particular, the FTC alleges that the two companies were competitors in the e-cigarette market but then came to an agreement whereby Altria agreed not to compete 'in return for a substantial ownership interest in JUUL'.57 An FTC administrative law judge dismissed the complaint in February 2022, finding that complaint counsel failed to prove the existence of the exit agreement and also failed to prove that the non-compete agreement unreasonably restrained or was likely substantially to harm competition.58 This decision is on appeal before the commissioners.

Illumina and Grail

In March 2021, the FTC challenged Illumina's then-proposed acquisition of the shares of Grail that it did not already own. (At the time, according to the FTC, Illumina, which founded Grail, owned 14.5 per cent of Grail's voting shares.) According to the FTC's administrative complaint, Illumina is 'the dominant provider of DNA sequencing' and Grail is developing a multi-cancer early detection (MCED) test, which is a liquid biopsy that relies on DNA sequencing to detect DNA from cancer cells present in the bloodstream.59 The FTC alleged that Grail and its competitors 'have no substitutes for Illumina's NGS's [next-generation sequencing] platforms' and that if the acquisition were allowed to proceed, it would harm competition in the not-yet-commercialised market for MCED tests. The FTC argued that 'Illumina will gain the incentive to foreclose or disadvantage firms that pose a significant competitive threat to Grail and to limit the competitiveness of any MCED product' and thus 'Illumina will control the fate of every potential rival to Grail for the foreseeable future'.

In response to the FTC's litigation, Illumina announced that it is 'irrevocably offering' a 'standard contract to any US oncology customer', which it says includes, among other things, terms for 'guaranteed access to the latest sequencing products' for 12 years, 'no price increases for the sequencing products covered by the agreement' and 'guarantees lower pricing for the sequencing products by 2025'. The FTC commenced an administrative trial in August 2021 and just over a year later the administrative law judge determined that FTC complaint counsel failed to prove its prima facie case.60 (Shortly after the FTC decision was announced, the deal was prohibited by the European Commission. The administrative law judge's opinion is currently on appeal at the FTC.)

Notably, the FTC dismissed its parallel federal court proceeding seeking a preliminary injunction because the European Commission 'announced that it has accepted requests from Member States to assess Defendants' proposed transaction' and asserted that the parties could not close the transaction.61 Therefore, according to the FTC, a preliminary injunction was not necessary to preserve the status quo. The parties then closed their transaction on 18 August 2021. Illumina said that it 'believes the European Commission does not have jurisdiction to review the merger as the EU merger thresholds are not met, nor are they met in any EU Member State'.62 Legal proceedings are continuing in the EU.

Abandoned transactions

Numerous transactions were abandoned in the face of filed or threatened action by the agencies. These include:

  1. Verzatec's proposed acquisition of Crane Composites, which the DOJ alleged 'would harm competition in production and sale of pebbled fiberglass reinforced plastic (FRP) wall panels';63
  2. Cargotec's proposed merger with Konecranes, which the DOJ alleged 'would eliminate important competition in four types of shipping container handling equipment used by port customers to move goods in the global supply chain';64
  3. China International Marine Containers Group's proposed acquisition of Maersk Container Industry, which the DOJ alleged 'would have combined two of the world's four suppliers of insulated container boxes and refrigerated shipping containers' and 'consolidated control of over 90% of insulated container box and refrigerated shipping container production worldwide in Chinese state-owned or state-controlled entities';65
  4. Nvidia's proposed acquisition of Arm, in which the FTC, in alleging a vertical theory of competitive harm, argued that 'the proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips'; and
  5. Lockheed Martin's proposed acquisition of Aerojet Rocketdyne, which, in another challenge based on a vertical theory, the FTC alleged, 'would have eliminated the country's last independent supplier of key missile propulsion inputs and given Lockheed the ability to cut off its competitors' access to these critical components'.66

Parties to several healthcare transactions also abandoned their deals in the face of FTC challenges as described above.

Divestiture and conduct remedies

In late January 2022, Jonathan Kanter, the assistant attorney general in charge of the DOJ Antitrust Division, signalled that the DOJ may be more willing to litigate and less willing to settle merger cases. Indeed, in 2022 the DOJ had a busy merger litigation docket and has not agreed to a divestiture settlement subject to Tunney Act judicial approval since late 2021. However, in July 2022, in a case related to the acquisition of Sanderson Farms by Continental Grain and Cargill, the DOJ agreed to a consent decree prohibiting the sharing of competitively sensitive information about the compensation of poultry processing plant workers. The consent decree also contains provisions regarding arrangements with chicken growers.67 The DOJ then allowed the merger to close.

Unlike the DOJ, the FTC continues to enter into consent orders to resolve merger cases. Some of these consent orders have become more onerous, however, after the implementation of the FTC's policy to include 'prior approval' provisions. Of particular note, in a matter involving the private equity-sponsored acquisition of veterinary clinics, the FTC's consent order includes broad provisions requiring the acquirer to receive prior approval for future acquisitions of clinics within 25 miles of an existing owned clinic anywhere in California or Texas.68 The order also requires prior notice of future acquisitions of clinics within 25 miles of an existing owned clinic anywhere in the United States. Another type of prior approval provision that has become increasingly common generally requires purchasers of divestiture assets to seek the FTC's agreement before selling those assets.

The FTC required divestitures in a number of other deals, including:

  1. EnCap Energy Capital Fund and EP Energy (divestiture of EP Energy's business in Utah);69
  2. Hikma Pharmaceuticals and Custopharm (divestiture of triamcinolone acetonide drug assets);70
  3. Prince International and Ferro (divestiture of facilities for porcelain enamel frit, glass enamel and forehearth colourants);71
  4. Medtronic and Intersent ENT (divestiture of subsidiary making ear, nose and throat navigation systems and balloon sinus dilation products);72
  5. ARKO and Corrigan Oil (divestiture of 60 retail fuel outlets and limitation on non-compete agreement);73 and
  6. Tractor Supply and Orscheln Farm and Home (divestiture of certain stores, corporate offices and a distribution centre).74
ii Trends, developments and strategies

In 2022, the DOJ gave significant attention to interlocking directorates. In general, Section 8 of the Clayton Act prohibits a person from simultaneously serving on the board or as an officer of two competing corporations unless the criteria for de minimis exceptions are met. Historically, when the DOJ became aware of a potential Section 8 issue (typically during review of a proposed transaction), the matter was often resolved by the director resigning from a board. In certain instances, the DOJ issued a public statement about the matter. In October 2022, the DOJ announced that a number of individuals resigned from corporate boards 'in response to concerns by the Antitrust Division that their roles violated the Clayton Act's prohibition on interlocking directorates'.75 We expect the DOJ to continue to focus on issues relating to interlocking directorates.

iii Outlook

The DOJ and FTC are soon set to release draft revised merger guidelines. These new guidelines would replace the agencies' Horizontal Merger Guidelines, which have been in place in their present form since 2010, and the Vertical Merger Guidelines, which were adopted by the agencies in 2020. (The FTC, for its part, rescinded those guidelines in September 2021.) New merger guidelines have the potential to bring more transparency to how the agencies conduct merger reviews, but their ultimate impact will depend on whether courts agree with theories of competitive harm asserted by the agencies in merger challenges. Merger guidelines are not binding on the federal courts and do not change the law, but in the past they have been cited as persuasive authority by courts. The agencies called for public comment in connection with their review of merger guidelines 202022, and it is likely that the draft new guidelines will be subject to public comment after they are published.

The agencies' losses have not deterred them from aggressively pursuing merger cases. In December 2022, the FTC sued to block Microsoft's acquisition of Activision, alleging that the deal could harm competition because Microsoft could and would withhold video game content from rival gaming consoles.76 If these challenges are successful, the agencies may be emboldened to challenge future deals using similar theories.

The DOJ has a pending case seeking to block Assa Abloy's acquisition of the hardware and home improvement division of Spectrum Brands. After the DOJ filed suit, but before trial, Assa Abloy announced it would divest certain businesses in an effort to address competitive concerns. An important issue before the court is whether the court should take into account the effect of these proposed divestitures in determining whether the government meets its burden of proof to establish a prima facie case that the deal may be substantially to lessen competition. A different judge (in the UnitedHealth/Change Healthcare case) determined that courts should take proposed divestitures into account.