DOJ/FTC Merger Guidelines and Review Process

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A DOJ/FTC Merger Guidelines and Review Process Practice Pointers and Lessons Learned From Antitrust Enforcement Trends THURSDAY, JULY 25, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Mark S. Ostrau, Partner, Fenwick & West, Mountain View, Calif. James W. Lowe, Partner, Wilmer Cutler Pickering Hale and Dorr, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Strafford Publications Seminar July 25, 2013 James W. Lowe WilmerHale Mark S. Ostrau Fenwick & West LLP

6 The (New) Merger Guidelines Textbook Recent DOJ/FTC Actions Comparing Theory to Actual Practice Process Changes and Issues Key Takeaways and Lessons for Company Counsel 6

7 First DOJ Guidelines published in 1968 focused heavily on concentration No revision until 1982 & 1984 (DOJ only); separate FTC Guidelines (1982) Increased focus on competitive effects First joint Guidelines in 1992 Set formula for analysis centered around market definition By mid-2000s, consensus that 1992 Guidelines no longer accurately reflected current analytical process 7

8 These Guidelines describe the principal analytical techniques and the main types of evidence on which the Agencies usually rely to predict whether a horizontal merger may substantially lessen competition. [Guidelines 1] These Guidelines do not describe the way that the Bureau of Competition and enforcement staff at the Commission proceed today. They also do not reflect the way that the courts proceed. [FTC Commissioner Rosch] 8

9 Market definition no longer first step Even when markets defined, higher concentration thresholds Acceptance of much higher HHI levels ( ) Preference for narrow markets even if exclude some substitutes Fact-specific process using a range of analytical tools Observed effects and natural experiments Closeness of competition Pricing Models (Critical Loss/Diversion/GUPPI) Simulation models Role as Maverick But see Ovation (failure to prove product market doomed post-deal case even though prices skyrocketed); Group Health (refusal to adopt UPP test) 9

10 Unilateral Effects: Whether the combined firm will gain sufficient market power that it will be able to exercise successfully to raise price Coordinated Effects Whether as a result of the transaction the industry will be more susceptible to coordinated pricing or output Does not require showing that collusion is more likely 10

11 No market share requirement Recognizing concern with non-price effects Quality, variety, service Innovation (reducing incentives vs. enabling through complementary capabilities) Key evidence in practice Company documents Win-Loss records Margin analysis Cross-elasticity of demand 11

12 History of coordination in market Transparency of price and non-price competition Product homogeneity Size and frequency of sales Demand elasticity Buyer characteristics Presence of a maverick 12

13 Entry: Entry by a single firm that will replicate at least the scale and strength of one of the merging firms is sufficient. [Guidelines 9.3] Google/AdMob (Apple/Quattro) Entry must be both timely and sufficient to avoid competitive harm from the transaction Efficiencies: high level of proof, and won t outweigh significant competitive risk Requires objective, preferably pre-signing, analysis of likely efficiencies and synergies Fixed cost savings given little weight Power Buyers: limited impact 13

14 Modes of Analysis Second Requests Enforcement Actions Key Evidence/Theories 14

15 2010 Guidelines given more explicit weight to complex analytical models both as initial screens and as determinants of likely competitive effects Models will vary depending on the nature of the competitive concern and available data Recent cases show increased reliance on modeling Early preparation to address modeling is key 15

16 Increased frequency of Second Requests Especially from DOJ (but lower challenge rate as a result) Frequency increases with size of transaction However, many smaller transactions are caught Key evidence: market shares/# of suppliers, entry barriers, customer complaints, hot docs Primacy of price effects Non-price effects secondary (but still there) Innovation effects mostly limited to pharma Volume of material demanded is enormous Between documents & data, often measured in terabytes 16

17 New Guidelines alone have not meaningfully changed enforcement patterns Focus on high shares or high industry concentration Investigations increasingly litigation focused Agencies seemingly more willing to litigate Enforcement decisions more multi-faceted Less reliance on single type of evidence Decisions often made only after full examination of documents and data 17

18 Agency Parties Industry Significant Competitors DOJ H&R Block/TaxACT Tax Preparation Software 3 to 2 28% Combined Market Share DOJ AT&T/T-Mobile Mobile Wireless 4 to 3 42% (national) FTC LCA/Orchid Cellmark DNA Testing Services 2 to 1 N/A FTC Western Digital/HGST Disk Drives 3 to 2 50% DOJ IDT/PLX Semiconductors 2 to 1 86% FTC Teva/Cephalon Generic Drugs 3 to 2 83% DOJ ABI/Modelo Beer 4 to 3 46% (national) DOJ Bazaarvoice/ PowerReviews Internet Ratings Platforms 2 to 1 N/A 18

19 Guidelines related: Less rigidity in nature of analysis and investigation Somewhat greater integration of fact and economic analysis Not Guidelines related: Greater effort to use initial waiting period for substantial analysis More interaction among economists Increased demand for timing agreements Very one-sided process Automated document review 19

20 Market shares and # competitors still important Win-Loss experience (diversion analysis) more important Hot documents matter a lot Customer opinions matter a lot too Process becoming more complex Increased modeling; timing agreements 20

21 Heightened need for sensitizing all document preparers early Write with expectation will be reviewed Avoid colorful and/or market-limiting language Don t oversell transaction Provide drafts of sensitive documents to counsel before providing to anyone else Limit dissemination and redistribution 21

22 HSR 4c/4d: Internal analyses relating to competition, markets, synergies or efficiencies of proposed transaction Banker or consultant analyses of competition or markets created in last year (not specific to deal or buyer) Offering memoranda created in last year (not specific to deal or buyer) 22

23 There s really only two players of any substance in the organic and all natural [market], and that s Whole Foods and Wild Oats.... [T]here s really nobody else in that particular space. [Buying PLX means difference between] 2 strong players vs. one monopoly. [Acquisition will allow remaining players to] regain control of industry pricing and avoid further price erosion. [Acquisition] an opportunity to take out Bazaarvoices s only competitor, who... suppressed Bazaarvoice price points by as much as 15%. By buying [Wild Oats] we will greatly enhance our comps over the next few years and avoid nasty price wars in many other cities which will harm our gross margins and profitability. The merger would further increase... Switching costs and deepen [Bazaarvoice s] protective moat. 23

24 2010 Guidelines evolutionary Process now more fact-specific and economic-driven High concentration or market shares? History of collusion? Expect an investigation Process is long, resource draining and complex Begin preparations early 24

25 Mark Ostrau Jim Lowe 25