Agency Heads Discuss Revisions to Merger Guidelines at ABA Antitrust Meeting

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Antitrust practitioners reviewing proposed revisions to the federal antitrust agencies’ Horizontal Merger Guidelines should have a better understanding of current agency practice, according to federal antitrust enforcers speaking April 23 at an enforcement roundtable during the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C.

The proposed revisions to the guidelines, which outline how the federal antitrust agencies evaluate the likely competitive effects of mergers in order to determine compliance with U.S. antitrust law, were released on April 20 in anticipation of the meeting. The proposed revised guidelines appear at CCH Trade Regulation Reporter ¶ 50,252.

Reflection of Agency Practice

Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, told meeting attendees at the enforcement roundtable that, while the proposed revised guidelines are not all that different in substance from the current 1992 guidelines, the 1992 guidelines do not reflect the actual practice at the agencies. This latest update is an effort to be transparent, according to Varney.

The antitrust chief reminded attendees that each transaction is viewed on the facts of that transaction. She noted the importance of direct evidence of a potential merger’s competitive effects in evaluating a merger. The role of direct evidence in merger analysis is reflected in the proposed updated guidelines, Varney said.

FTC Chairman Jon Leibowitz also described the proposed revisions to the guidelines as an effort to explain to practitioners and judges what the agencies are doing when evaluating the competitive effects of mergers.

Leibowitz discussed the role of direct evidence of competitive effects in actions challenging Evanston Northwestern Healthcare Corporation’s 2000 acquisition of Highland Park Hospital and Western Refining, Inc.’s proposed acquisition of rival energy company Giant Industries, Inc., in 2007. He suggested that the judge in the latter case took a mechanistic view of the Horizontal Merger Guidelines in rejecting the FTC’s request for a preliminary injunction blocking Western Refining’s acquisition of Giant Industries.

Market Concentration

The proposed updates also raise the Herfindahl-Hirschman Index (HHI) measures for market concentration in order to be more consistent with current agency practice, Leibowitz explained. As a result, mergers that would have appeared to be highly concentrated under the 1992 guidelines, based on HHI measures, would be considered only moderately concentrated under the proposed revised updates.

According to the guidelines, mergers that cause a significant increase in concentration and result in highly concentrated markets are presumed to be anticompetitive.

Merger Enforcement

Both agency heads took the opportunity to tout recent merger enforcement activity. Chairman Leibowitz said that the FTC was on “a little bit of a winning streak” in the merger enforcement area. He pointed to the decision of CCC Information Services Inc. to abandon its merger with Mitchell International Inc., in light of the agency’s challenge to the transaction.

The federal district court in Washington, D.C. had granted the FTC’s request for a preliminary injunction (PI) to block the transaction pending administrative litigation. The 2009 decision was the agency’s first PI win since 2003, according to the Commissioner.

Assistant Attorney General Varney discussed the Antitrust Division’s recent settlement with Ticketmaster Entertainment, Inc. In order to proceed with its proposed acquisition of concert promoter Live Nation, Inc., ticket seller Ticketmaster was required to license ticket software and divest a subsidiary ticketing business. In addition, behavioral remedies were imposed on Ticketmaster.

Varney told attendees that the agency’s preference was for structural relief, but that sometimes there is a need for both structural and behavioral remedies.

Canada Competition Bureau Merger Procedures

Canada Competition Commissioner Melanie Aitken, who was also on the roundtable panel, discussed recent changes to the merger review process north of the border. Aitken said that the changes “make for a far more effective merger review process.”

While she described the process as “Made in Canada,” Aitken noted that the reforms, which have to do with process and not substance, bring the merger review process more in line with U.S. practice. For instance, the two-stage review process replicates the second request process utilized by the federal antitrust agencies in the United States. Aitken said that the changes make coordination with her counterparts in the United States easier.

Ticketmaster/Live Nation Combination Gains Antitrust Approval

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In order to proceed with its proposed acquisition of concert promoter Live Nation, Inc., ticket seller Ticketmaster Entertainment, Inc. will be required to license ticket software to Anschutz Entertainment Group (AEG) and divest a subsidiary ticketing business, Paciolan, to either Comcast-Spectacor or another suitable buyer. Ticketmaster has also agreed to subject itself to court-ordered restrictions on its behavior.

The remedies are intended to preserve the competition that Ticketmaster faced from Live Nation, a new ticketing entrant. By 2009, Live Nation, which was Ticketmaster’s largest customer for primary ticketing services, was providing primary ticketing services to more than 15 percent of the capacity at major U.S. concert venues, according to the Justice Department.

Federal, State, Canadian Antitrust Concerns

The concessions would resolve U.S., Canadian, and state antitrust concerns over the combination of Ticketmaster—the largest provider of ticketing services in the world—and Live Nation—the world’s largest promoter of live concerts.

The U.S. Department of Justice and 17 state attorneys general filed a civil antitrust lawsuit on January 25 in the federal district court in Washington, D.C., challenging the merger. At the same time, the federal and state enforcers filed a proposed consent decree, which if approved, would resolve the suit.

The Canada Competition Bureau announced the same day that a consent agreement was filed with the Competition Tribunal to resolve that country’s concerns over the combination. The Justice Department and Canada Competition Bureau said in statements that they cooperated closely throughout the investigation and worked together to obtain the same remedy to preserve competition in both countries.

Licensing Ticketing Software

The settlements require Ticketmaster to license a copy of its primary ticketing software to AEG. AEG is Live Nation’s principal competitor and an operator of some of the most important concert venues in the country. With a copy of the Ticketmaster software, AEG will be able to market a ticketing system that is an attractive choice to venues, according to the Justice Department. AEG will have incentives similar to Live Nation to provide better services at lower prices.

Within five years, AEG can purchase the Ticketmaster ticketing software, decide to create its own software, or partner with a ticketing company other than Ticketmaster. The Justice Department said that this remedy enhances short and long term competition in the primary ticketing market.

Divestiture of Subsidiary

The settlement requires Ticketmaster to divest more ticketing than it will gain through its acquisition of Live Nation, according to the Justice Department. The settlement requires the divestiture of the Paciolan assets within 60 days. Paciolan is used by hundreds of venues to sell tickets including major concert venues around the country.

Comcast-Spectacor, a sports and entertainment company with management relationships with a number of concert venues and ticketing experience, has already signed a letter of intent to purchase those assets. If the assets are not sold to Comcast-Spectacor, then they must be divested to a buyer suitable to the Department of Justice and the Canada Competition Bureau.

Behavioral Remedies

The settlements also contain conduct restrictions. According to the Justice Department, the settlement provides tough anti-retaliation provisions that will keep the merged company in check and put them under a court order for ten years.

“The linked structural and behavioral remedies in this settlement preserve and protect competition, while allowing the parties to achieve any consumer benefits that are associated with the merger, Christine A. Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, said in remarks prepared for delivery at a January 25 briefing, announcing the settlement.

Details of the complaint and proposed consent decree in U.S. v. Ticketmaster Entertainment Inc. and Live Nation Inc., 1:10-cv-00139, appear here at the Daprtment of Justice Antitrust Division website. Further details will appear in CCH Trade Regulation Reporter.

Other Recent Merger Enforcement Activity

The Ticketmaster/Live Nation is the most high profile merger action announced recently by the Antitrust Division recently; however, there has been a recent uptick in merger-related developments at the agency.

On January 22, the Department of Justice, joined by three state attorneys general, filed an action in the federal district court in Milwaukee, challenging Dean Foods Company’s April 2009 acquisition of Foremost Farms USA’s Consumer Products Division.

The action is notable because the acquisition has been consummated and the transaction was not reportable under the Hart-Scott-Rodino Antitrust Improvements Act. The lawsuit not only seeks to undo the acquisition of the two dairy processing plants, but also seeks to require Dean Foods to notify the Justice Department at least 30 days prior to any future acquisition involving a milk processing operation.

Text of the complaint in U.S. v. Deans Foods Co. appears here on the Department of Justice Antitrust Division website.

A day earlier, the Antitrust Division announced that Smithfield Foods Inc. and Premium Standard Farms LLC agreed to pay $900,000 in civil penalties to settle “gun jumping” charges. A proposed consent decree, awaiting approval in the federal district court in Washington, D.C., would resolve charges that, while the merger was pending, Smithfield exercised operational control over a significant segment of Premium Standard’s business. The Justice Department is not challenging the underlying merger, which the companies closed in May 2007.

Further details regarding U.S. v. Smithfield Foods, Inc. appear here on the Department of Justice Antitrust Division website.

In another Justice Department action, which was filed in 2007, newspaper publishers Daily Gazette Company and MediaNews Group Inc. (now known as Affiliated Media Inc.) agreed to restructure a newspaper joint operating arrangement and take other steps to restore competition under the terms of a proposed consent decree filed in the federal district court in Washington, D.C.

The proposed consent decree and other documents in U.S. v. Daily Gazette Co. are available here on the Department of Justice Antitrust Division website.

FTC, Canada Competition Bureau Approve Schering-Plough’s Acquisition of Merck

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Schering-Plough Corporation can proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. under the terms of a proposed FTC consent order, according to the agency's October 29 announcement.

The consent order would settle FTC charges that the transaction, as originally proposed, could have reduced competition in a range of animal health markets in which the companies compete and in the market for human drugs known as NK 1 receptor antagonists, which are used to treat nausea and vomiting resulting from chemotherapy and surgery.

The companies are two of the leading animal health suppliers in the United States. According to the FTC, the proposed acquisition raised significant concerns in markets where Merck—through Merial Limited, an animal health joint venture with Sanofi-Aventis S.A—and Schering-Plough directly compete. Merck would be required to sell its interest in Merial, under the proposed consent order.

In the market for NK 1 receptor antagonists, Merck’s Emend was the first and only approved treatment for human use. Schering-Plough, however, was in the process of licensing its own NK 1 receptor antagonist, rolapitant, to a third party when the company’s acquisition of Merck was announced.

The transaction, therefore, likely would have reduced the combined firm’s incentives to launch rolapitant, delaying or eliminating a future entrant into the market for NK 1 receptor antagonist drugs for nausea and vomiting. Under the terms of the FTC’s consent order, Schering-Plough would be required to sell assets related to rolapitant.

Canada Competition Bureau Approval

Canada's Competition Bureau also announced on October 29 that it has reached an agreement with Merck and Schering-Plough to resolve competition concerns with respect to their proposed merger. The Competition Bureau said that it worked closely with the FTC in its investigation. The relief imposed by the Competition Bureau is the same as that which would be required under the proposed FTC consent order.

The complaint and proposed consent order, In the Matter of Schering-Plough Corporation, a corporation, and Merck & Co. Inc., FTC Docket No. C-4268, will appear at CCH Trade Regulation Reporter ¶16,383.