On January 21, 2010 the European Commission (Commission) gave its conditional approval to the acquisition of Varian Inc by Agilent Technologies Inc. The parties’ activities in the bio-analytical measurement and life science instruments markets overlapped in several respects, and the Commission found competition concerns in several markets related to the parties’ chromatography activities. Despite these concerns, the parties managed to avoid a potentially lengthy Phase II investigation by agreeing to divestments of various assets in order to secure the Commission’s approval at the end of Phase I.
Agilent and Varian, both active in the manufacturing and sale of life sciences and analytical equipment, are major players in the global market and, as such, were expected to be subject to close examination during the Commission’s investigation of the proposed acquisition. Amongst several overlaps, the Commission found that the parties were sufficiently close competitors in a few areas, with sufficiently high market shares, as to give rise to serious competition concerns. The Commission identified the parties’ activities in the markets for the manufacture and sale of several types of gas chromatography (“GC”) instruments, and plasma mass spectrometry instruments, as giving rise to particular concern.
The parties’ potentially high combined market shares in the markets for laboratory and micro/portable gas chromatography instruments, plus inductively-coupled plasma mass spectrometry instruments, were enough to convince the Commission that divestments would be required. With respect to triple quad gas chromatography mass spectrometry instruments (triple quad GC), Varian had a strong pre-existing position in the European market. Agilent was a recent entrant, but one that had nonetheless shown itself to be a viable and effective new competitor in the market. As a result, the Commission obtained commitments from both parties to make certain divestments. Varian gave commitments to part with its entire global Lab GC, triple quad GC and ICP-MS businesses, while Agilent agreed to the divestment of its micro/portable GC instrument business. Parallels with other medical device mergers The Commission’s approach and the parties to this merger invite comparison with another merger in the medical device field — the acquisition by Johnson & Johnson of Guidant Corporation in 2005.
In that case, the parties’ high combined market shares in several markets also raised concerns with the Commission. Another concern highlighted by the Commission in that case was Johnson & Johnson’s strength in the market for coronary drug eluting stents (DES), in parallel with Guidant’s probable imminent entry into the market. Given that there were few competitors present on the DES market, the Commission saw Guidant as a potentially effective new constraint on Johnson & Johnson’s strong position in the market.
Ultimately, in each case, the parties gave commitments to make divestments in several of the markets identified by the Commission as a cause for concern. In contrasting the Johnson & Johnson case and the recent Varian decision, one notable difference between the two is the offer of commitments and subsequent approval at Phase I of the Varian acquisition, as opposed to the Johnson & Johnson acquisition where the parties went through a Phase II investigation that was likely prompted, at least in part, by more complex and numerous market issues than were raised in the Varian acquisition.
The Commission’s latest review of a medical device merger in Varian/Agilent has shown it drawing from the experience in other medical device cases and more broadly from the analytical framework deployed in pharmaceutical mergers. This includes consideration of the following key issues: (1) the boundaries of the relevant product market; (2) the nature and extent of barriers to entry (including IP, distribution and regulatory hurdles); and (3) the appropriate and likely remedies needed to secure clearance. In view of the interplay between these issues, it is important for medical device companies contemplating M&A activity to consider carefully how the merger control process will affect the timing and likelihood of successful implementation of their transaction in all markets where they do business