An extract from The Public Competition Enforcement Review, Edition 13

Merger review

In 2020, the DOJ and FTC continued their work investigating numerous proposed acquisitions. In addition, in a significant update, the agencies released Vertical Merger Guidelines in June 2020.59 These guidelines, which supersede vertical merger guidance issued by the DOJ in 1984, describe potential anticompetitive harms that the agencies believe may arise with vertical mergers, while continuing to recognise that such transactions can be procompetitive or at least competitively neutral. They detail how the agencies are likely to analyse mergers involving firms in 'non-horizontal' combinations, which, according to the guidelines, can include vertical mergers of firms at different levels of a supply chain, 'diagonal' mergers of firms at different levels of competing supply chains, and vertical aspects of 'mergers of complements'. The guidelines address potential competitive harms stemming from of market foreclosure, raising rivals' costs, access to competitively sensitive information and risks of coordination. In addition to these guidelines, the FTC issued a lengthy Commentary on Vertical Merger Enforcement.60

Also, in September 2020, the DOJ published a Merger Remedies Manual.61 The manual sets out the DOJ's approach to many issues encountered in designing acceptable remedies to mergers that would otherwise be challenged as anticompetitive by the DOJ. The guidance includes discussions relating to the evaluation of 'upfront' buyers and factors that, according to the DOJ, increase the risk that a remedy will not meet the goal of preserving competition. The manual reaffirms the DOJ's strong preference for structural – rather than behavioural – relief, i.e., divestitures rather that ongoing conduct commitments that require continued monitoring.

i Significant casesLitigated merger challengesSabre and Farelogix

The DOJ sought to block the acquisition of Farelogix by Sabre, arguing the acquisition would harm competition for airline 'booking services', a market in which the DOJ claimed Farelogix was acting as a 'disruptor'.62 After an eight-day bench trial, the court denied the DOJ's motion to enjoin the transaction, finding that the government did not meet its burden to establish a prima facie case of competitive harm. In particular, the court found that, among other things, the DOJ did not establish a 'proper relevant market', writing that '[a]s a matter of antitrust law, Sabre, a two-sided transaction platform, only competes with other two-sided platforms, but Farelogix only operates on the airline side of Sabre's platform.'63 Therefore, according to the court, the two companies do not compete with each other.64

The DOJ appealed, but, during the pendency of the appeal, the parties terminated their merger agreement in light of the UK Competition and Markets Authority's decision to block the transaction. The appeals court later vacated the district court's order granting judgment to the defendants 'because Sabre Corporation mooted the parties' dispute by terminating its acquisition'.65 Nevertheless, the appeals court stated that its action 'should not be construed as detracting from the persuasive force of the District Court's decision, should courts and litigants find its reasoning persuasive'.66

Arch Coal and Peabody Energy

The FTC successfully blocked a proposed joint venture between Peabody Energy and Arch Coal. The parties had sought to combine their coal mining operations in an area of Wyoming known as the Southern Powder River Basin (SPRB). In February 2020, the Commission filed an administrative action and a federal court suit to stop the combination, arguing that 'the transaction will eliminate competition between Peabody and Arch Coal, which are the two major competitors in the market for thermal coal in the Southern Powder River Basin, or SPRB, and the two largest coal-mining companies in the United States.'67

In September 2020 the federal court sided with the FTC and granted its motion for preliminary injunction.68 The court found that coal from the SPRB was a relevant product market and that the FTC carried its burden in establishing a presumptive lessening of competition in that market because the transaction would 'result in a significant market share [for the JV] and an undue increase in concentration'.69 After the court ruled, the parties announced that they would abandon the venture.70

Challenges mounted against consolidation in the provision of healthcareGeisinger Heath and Evangelical Community Hospital

On 5 August 2020, the DOJ sued to enjoin Geisinger Health's partial acquisition of Evangelical Community Hospital. According to the DOJ's complaint, the transaction would reduce competition for inpatient hospital services in central Pennsylvania by creating 'substantial financial entanglements between these close competitors' and reducing 'both hospitals' incentives to compete aggressively'.71 The DOJ argues that 'Geisinger has a history of acquiring community hospitals in Pennsylvania' and that the parties sought to avoid antitrust scrutiny by entering into a 'partial-acquisition agreement' which nevertheless 'imposes significant entanglements between Defendants, reducing their incentives to independently compete against each other and increasing the likelihood of coordination'.72

Jefferson Health and Albert Einstein Healthcare Network

The FTC filed an administrative complaint and an action seeking a preliminary injunction against the proposed merger of Jefferson Heath and Albert Einstein Healthcare Network. The FTC argued that this acquisition 'would eliminate the robust competition between Jefferson and Einstein for inclusion in health insurance companies' hospital networks to the detriment of patients' in the Philadelphia, Pennsylvania region and lead to a firm with between 45 and 70 per cent of the relevant markets.73 The federal court denied the FTC's motion for preliminary injunction on 8 December 2020, finding that the FTC had not met its burden in establishing a relevant geographic market.74 The FTC appealed, but later dropped its appeal.

Hackensack Meridian Health and Englewood Healthcare Foundation

In another healthcare-related matter, the FTC filed an administrative complaint and motion for preliminary injunction in federal court 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 would control 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'.75 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'.76

FTC challenge of two 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 alleges that the acquisition increased market concentration to such a degree that it was presumptively unlawful; and eliminated competition between two companies which were each other's closest competitors.77 This, according to the FTC, 'removed VieVu as a bidder for new contracts and allowed Axon to impose substantial price increases'.78 The complaint also challenges provisions of the merger agreement pursuant to which VieVu's former parent company, Safariland, agreed to not compete with Axon and 'limited solicitation of customers and employees by' that company and Axon.79 The FTC alleges that these provisions 'are not reasonably limited to protect a legitimate business interest'.80 Safariland rescinded these agreements and settled these allegations with the FTC in April 2020; the remainder of the matter is continuing.81

Axon mounted a constitutional challenge against 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.82 Axon appealed and the Ninth Circuit affirmed the district court's dismissal.83

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'.84

Abandoned transactionsIllumina and Pacific Biosciences of California

On 17 December 2019, the FTC announced that it was seeking to block the acquisition of Pacific Biosciences of California (PacBio) by Illumina. The FTC alleged that 'Illumina is seeking to unlawfully maintain its monopoly in the U.S. market for next-generation DNA sequencing (NGS) systems by extinguishing PacBio as a nascent competitive threat', 'the proposed acquisition is illegal because it may substantially lessen competition in the U.S. NGS market by eliminating current competition and preventing future competition between Illumina and PacBio', and 'the acquisition would harm competition by reducing the combined firm's incentive to innovate and develop new products'.85 According to the FTC, Illumina's systems use 'short-read sequencing technology, which has been the predominant NGS technology in the United States for the last decade', and PacBio's systems use 'long-read sequencing technology'.86 However, 'PacBio has made significant technological advancements in recent years that have increased the accuracy and overall throughput of its systems, while lowering the cost'.87 'As a result', the FTC said, 'PacBio is a closer alternative to Illumina than ever before.88 Customers have already switched some sequencing volume from Illumina to PacBio for certain use cases and applications, and PacBio is poised to take increasing sequencing volume from Illumina in the future.'89 On 3 January 2020, the parties announced that they abandoned the deal.90

Post Holdings and Treehouse Foods

After the FTC challenged the deal at the end of December 2019, alleging that it would have anticompetitive effects in an alleged market for 'private label ready-to-eat cereals', Post Holdings announced that it was terminating the agreement to acquire TreeHouse Foods.91 The FTC argued 'that the acquisition would have given Post more than a 60 percent share of an already highly concentrated market, and eliminated the vigorous competition between Post and TreeHouse to serve retailers across the country'.92

Cengage and McGraw-Hill

On 4 May 2020, textbook publishers Cengage and McGraw-Hill jointly agreed to terminate their merger agreement 'due to a prolonged regulatory review process and the inability to agree to a divestitures package with the US Department of Justice'.93 The DOJ said that the 'merger would have combined the second and third largest publishers of textbooks in the United States in a market long dominated by three major textbook publishers'.94

CoStar and RentPath Holdings

A month after the FTC sued to block CoStar's proposed acquisition of RentPath, the acquisition agreement was terminated.95 The FTC argued that 'the acquisition would significantly increase concentration in the already highly concentrated markets for internet listing services advertising for large apartment complexes in 49 individual metropolitan areas across the United States.'96

Visa and Plaid

Alleging that 'Visa is a monopolist in online debit services' and that its acquisition of Plaid threatened that position, the DOJ sued to block the transaction on 5 November 2020.97 Notably, the DOJ asserted a Sherman Act Section 2 monopolisation claim in addition to the usual Clayton Act Section 7 claim in its complaint to enjoin the deal.98 The complaint alleged that 'by acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.'99 In the face of this challenge, the parties terminated their merger agreement.100

Several other deals were abandoned in the face of agency challenge, including: the merger of Aveanna Healthcare and Maxim Healthcare Services (FTC concerns about competition in markets for nursing services and private duty nursing care);101 Edgewell Personal Care's acquisition of Harry's and Procter & Gamble's acquisition of Billie (FTC concerns about competition in the shaving industry);102 and Methodist Le Bonheur Healthcare's acquisition of two hospitals from Tenet Healthcare (FTC concerns about healthcare competition in the Memphis, Tennessee area).103

Divestiture and conduct remedies

The DOJ required divestitures in several proposed mergers, including:

  1. ZF Friedrischshafen and WABCO Holdings (divestiture of steering components business);104
  2. Liqui-Box and DS Smith (divestiture of certain packaging product lines);105
  3. United Technologies Corporation and Raytheon (divestiture of military airborne radios, military global positioning systems) and large space-based optical systems businesses);106
  4. Dairy Farmers of America and Prairie Farms Dairy (divestiture of certain plants);107
  5. Communications and Power Industries and General Dynamics Satcom Technologies (divestiture of large geostationary satellite antenna subsidiary);108
  6. Anheuser-Busch InBev and Craft Brew Alliance (divestiture of Kona beer brand in Hawaii);109
  7. Waste Management and Advanced Disposal Services (divestiture of certain landfills, transfer stations, hauling locations and waste collection routes);110
  8. Liberty Latin America and AT&T (divestiture of certain fibre-based telecommunications assets and customer accounts);111
  9. Intuit and Credit Karma (divestiture of Credit Karma's tax business);112 and
  10. Harvard Pilgrim Health Plan and Health Plan Holdings (formerly known as Tufts Health Plan) (divestiture of commercial health insurance business in the State of New Hampshire).113

In 2019 the DOJ announced that it agreed with Novelis Inc and Aleris Corp to use binding arbitration 'to resolve the dispositive issue' of product market definition in the DOJ's challenge to that deal.114 This was the first-ever use of arbitration to settle a merger dispute with the government. In March 2020, the arbitrator ruled in favour of the DOJ, finding that 'aluminium auto body sheet constitutes a relevant product market'.115 As a result of this finding, divestiture of Aleris's North American aluminium auto body sheet business was required.

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

  1. Compassion First and National Veterinary Associates (divestiture of veterinary clinics in three geographic markets);116
  2. FKI Holdings and Innocor (divestiture of polyurethane foam pouring plants in three regional markets);117
  3. Dannaher and GE Biopharma (divestiture of certain products used to manufacture biopharmaceutical drugs);118
  4. Össur Hf and College Park Industries (divestiture of prosthetic myoelectric elbow business);119
  5. AbbVie and Allergan (divestiture of assets related to exocrine pancreatic insufficiency pharmaceuticals);120
  6. Tri Star Energy and Hollingsworth Oil Company (divestiture of retail fuel assets in two local markets in Tennessee);121
  7. Eldorado Resorts ad Caesars Entertainment (divestiture of casino assets in Nevada and Louisiana);122
  8. Elanco Animal Health and Bayer Animal Health (divestiture of three animal health products);123
  9. Arko Holdings and Emipre Petroleum Partners (divestiture of certain retail fuel assets in local gasoline and diesel fuel markets in four states);124
  10. Upjohn and Mylan (divestitures related to several generic pharmaceuticals);125
  11. Stryker and Wright Medical Group (divestiture of ankle replacement and finger joint implant products);126 and
  12. E & J Gallo Winery and Constellation Brands (divestiture of several wine-related product lines).127
Consent decree enforcement

The DOJ also notably undertook several actions to enforce existing consent decrees. In January, the DOJ announced that a federal court entered a modified final judgment relating to the 2010 LiveNation/Ticketmaster merger.128 This action followed the DOJ's determination that the company 'repeatedly and over the course of several years engaged in conduct that, in the Department's view, violated' the 2010 consent decree, including by allegedly retaliating against concert venues that did not use Ticketmaster's ticketing services.129 The modified final judgment extends the term for five and a half years and includes provisions for the appointment of a monitoring trustee, among other things.

Also, in August 2020, the DOJ announced that it settled allegations that CenturyLink, a telecommunications company, violated a 2018 consent decree entered into in connection with its acquisition of Level 3 Communications. According to the DOJ, CenturyLink solicited customers of the company that purchased divestiture assets in violation of the decree. CenturyLink agreed to extend its non-solicitation obligations for two years and to the appointment of a monitoring trustee as terms of the settlement.130

The FTC took action to enforce one of its prior merger consent decrees. In July 2020, the Commission announced that Alimentation Couche-Tard and CrossAmerica Partners agreed to a civil penalty for failing to abide by the terms of a 2018 divestiture order.131

ii Trends, developments and strategies

Merger enforcement remains robust and the agencies continue to focus on thorough investigation of the matters before them. In addition to investigating proposed mergers, the FTC is undertaking a study of completed mergers. In September 2020, the Commission announced that it is expending its merger retrospective programme and will examine 'whether the agency's threshold for bringing an enforcement action in a merger case has been too permissive' and 'assess the performance of a pricing pressure index, merger simulation model, or other tools used to predict the effects of a proposed merger'.132 Later in the year the FTC announced that it was studying consolidation of physician groups and healthcare facilities.133 The DOJ announced that it is considering updating its guidelines on Bank Merger Competitive Review issued in 1995.134

iii Outlook

We expect the agencies to continue to devote substantial resources to merger investigations, and will watch with interest to see if the agencies will move aggressively on theories of vertical harm or against acquisitions of 'nascent' competitors.