On February 15, 2010, the Federal Trade Commission, with the concurrence of the Department of Justice's Assistant Attorney General for Antitrust, released the fiscal year 2010 reporting on merger reviews under the Hart-Scott-Rodino Premerger Notification Program. The Report showed merger and acquisition activity up substantially but, not surprisingly, still well short of the numbers for fiscal year 2007, the peak year for the first decade of the century.
Some of the highlights of the Report include:
- In FY 2010, 1,166 transactions were reported, a 63% increase from a lackluster 716 transactions in FY 2009. But reported transactions remain well below FY 2007's peak year of 2,201.
- Broken down by month, the trend is definitely positive. The Report shows that, from the beginning of the recession, the lowest month of reported transactions was February 2009 with 32. In FY 2009 there was no month in which reported transactions exceeded 100. But in FY 2010, six months had reported transactions exceeding 100, including four of the last five months. (In a stark contrast, between January 2004 and October 2008, there was only one month that had less than 100 reported transactions. That month was February 2005 with 99.)
- The industries most active in reported transactions (based on industry group of the acquiring person) were chemical manufacturing; computer and electronic manufacturing; merchant wholesalers; professional, scientific and technical services; and financial services and investments.
- The number of transactions resulting in second requests also increased to 46 from 31. But, percentage-wise, there was little change of around 4%. (Second requests require the parties to provide further information on the transaction and result in a delay in consummating the transaction, so are not welcomed by M&A candidates.)
- The dollar value of transactions in FY 2010 was $780 billion, up from $533 billion in FY 2009. But, like the number of transactions, dollar values are still well below FY 2007's peak of nearly $2 trillion.
- The Report included information on one notable enforcement action. Smithfield Foods reported its proposed acquisition of Premium Standard Farms. During the waiting period, Premium Standard Farms submitted three contracts for hog purchases to Smithfield for approval. This, said the enforcement agencies, showed that Premium Standard had stopped "exercising independent business judgment" and was allowing Smithfield "operational control" over Premium Standard's hog procurement during the waiting period. Under the terms of a consent decree the companies paid $900,000 in civil penalties to settle the charges.
- The Report discussed international cooperation in merger investigations and provided an extraordinary example. In an earlier update of January 26, 2009, we had noted the increasing international enforcement of anti-trust laws. ( http://www.masudafunai.com/Files/6056_Business_Update_1_26_09.pdf ) Shortly after, we wrote about the Panasonic acquisition of Sanyo in Japan (structured as a merger), which was being delayed due to the U.S. Department of Justice's review of the merger and its effect in the United States. (http://www.masudafunai.com/Files/6060_Business_Update_2_9_09.pdf ). The Report confirms that the FTC worked with its counterparts in Europe, Canada and Japan to resolve competitive concerns raised by Panasonic's $9 billion acquisition of Sanyo. The Report goes on to state that, "The FTC and the EC's [European Commission's] Directorate General for Competition coordinated to order the divestiture of a battery manufacturing facility in Japan to protect competition in the market for portable NiMH batteries that power two-way radios used by police and fire departments." The extraordinary implications of this sentence may not be apparent on first reading. But, basically, U.S. and European competition officials delayed the acquisition of one Japanese company by another Japanese company until there was a divestiture by one of the Japanese companies of a manufacturing facility in Japan. Certainly this illustrates the global marketplace and the extraterritorial reach of anti-trust laws.
- The high threshold does not prevent the agencies from challenging transactions below this amount. The agencies can also rollback consummated transactions. This is illustrated by the Antitrust Division's challenge of Cameron International's proposed $780 million acquisition of NATCO Group and Cameron International's $8.5 million completed acquisition of the assets of Howe Baker in 2005. The Division alleged that the 2005 acquisition, well below the HSR reporting threshold, created a monopoly in the manufacture of refinery desalters. NATCO, a recent entrant in that market, was Cameron International's closest competitor for a significant set of customers. To satisfy the Division's concerns, through a consent decree, Cameron International divested certain assets that it had purchased from Howe Baker in 2005.