Recent developments reflect the continued mission of antitrust authorities worldwide to vigorously pursue and penalise violations of merger procedures. First to the U.S. and a Federal Trade Commission (FTC) blog post reminding companies to work quickly and carefully to avoid breaching divestiture orders to which they are subject. It notes that:

any deadlines set in an FTC order are ‘real’ and not suggestions, with each violation a separate offence subject to civil penalties;
FTC approval for the divestiture sale will take around two months and must be obtained prior to the deadline;
extensions, which must be sought before the divestiture deadline, are within the FTC’s sole discretion and the bar is high;
FTC staff should be contacted immediately to report and discuss divestiture issues as soon as they arise; and
compliance reports must also be used to alert the FTC to any problems and concerns – comprehensive information on what is being done to stay on track with the divestitures is required to avoid additional penalties.

The blog was published on the back of a July settlement of FTC allegations that Alimentation Couche-Tard (ACT) and its former affiliate CrossAmerica Partners LP (CAPL) violated a 2018 order to divest certain retail fuel stations. ACT and CAPL have agreed to pay a USD3.5m civil penalty for failing to: (i) divest the enumerated retail fuel stations by the set deadline; (ii) provide accurate and detailed information in compliance reports on their divestiture efforts; (iii) maintain the viability, marketability and competitiveness of a retail fuel station; and (iv) provide a full description in compliance reports of efforts to maintain assets at that fuel station. The FTC states: “the Commission takes its orders seriously, and parties should too”.

The same can be said for the U.S. Department of Justice Antitrust Division (DOJ) and its attitude to consent decrees. This month the DOJ: (i) settled allegations that CenturyLink “repeatedly” violated a court-ordered final judgment related to its 2017 acquisition of Level 3 Communications by soliciting customers that switched to the buyer of the divestiture assets. In a revised settlement agreement, CenturyLink has now agreed to extend a non-solicitation period, appoint an independent monitoring trustee and reimburse the DOJ’s enforcement costs; (ii) asked a federal court to appoint a trustee to ensure Novelis’s divestment of an aluminium plant after the company failed to meet a deadline set as part of its acquisition of Aleris; and, tellingly, (iii) re-organised to create an Office of Decree Enforcement and Compliance with primary responsibility for enforcing consent decrees and published an updated Merger Remedies Manual which confirms its renewed focus on enforcement in this area.

Over to Israel, and the filing of criminal charges by the Israeli Antitrust Authority (IAA) against film distributor Forum Film for refusing requests from Lev Cinema to supply one of its Tel Aviv cinemas with films from three major Hollywood film studios. The IAA claims this breaches commitments agreed in 2010 relating to a merger between Forum Film and AD Matalon & Co which gave Forum Film exclusive distribution rights to the film studios. Given Cineworld owns both Forum Film and cinema chain Rav Chen, the IAA conditioned its approval on Forum Film providing films to competing cinema chains. A Cineworld chief executive has also been indicted.

Greece too has seen enforcement for failure to comply with merger commitments – the antitrust authority has fined Attica Holdings EUR29,792 for failing to comply with commitments relating to the operation of two shipping routes which conditioned approval of its acquisition of Hellenic Seaways.

In Poland, the President of the Office of Competition and Consumer Protection (UOKiK) has imposed a penalty of almost PLN213m (approx. EUR50m) – the maximum level provided for by law – on Gazprom for failing to provide information in an investigation into whether the financing agreements for the construction of Nord Stream 2 gas pipeline, concluded by Gazprom and five companies from western Europe, should have received prior UOKiK consent. Due to a failure by UOKiK to justify a request for information made earlier this year, Gazprom did not provide the information demanded. It follows a similar fine of PLN172m imposed in November 2019 on Engie Energy. Gazprom has announced it will appeal.

In Hungary, the antitrust authority fined DIGI HUF20m (EUR56,678) at the end of July for submitting – for the second time – false information in the review of its takeover of Invitel. The authority first conditionally cleared the merger in May 2018 but revoked that clearance a few months later after discovering that there were in fact 89 areas of concern rather than the 23 identified. DIGI was fined HUF90m (EUR0.27m), reduced by 50% on appeal. In March, the authority again cleared the deal, imposing more extensive remedies, but has once more needed to modify its decision to account for the true facts of the case – this time by removing one local market from those affected by DIGI’s commitments.

The submission of incorrect and misleading information in merger reviews is also on the European Commission’s radar. Last month, it confirmed that it is still looking into whether Sigma intentionally or at least negligently failed to provide important information about an innovation project relating to certain laboratory chemicals in the context of the Commission’s review of its acquisition by Merck.

In the UK, the Competition and Markets Authority (CMA) has fined JD Sports and its parent Pentland Group GBP300,000 for failing to comply with a May 2019 hold separate order issued by the CMA while it was reviewing JD Sports’s completed acquisition of Footasylum – a transaction which the CMA ultimately decided to block. Footasylum served a break notice on the landlord of a particular store without the CMA’s prior written consent (despite a monitoring trustee recommendation to notify the CMA) and, the CMA claims, other than in the ordinary course of business. The CMA considers that the move potentially impeded any remedial action the CMA may have been required to take in relation to the merger, and that the steps JD Sports and Pentland each took to procure Footasylum’s compliance with the order were insufficient.

In terms of fines for failing to file or late filing of notifiable transactions, the last three months have seen penalties imposed in Norway, Moldova, South Africa, Mexico and a clutch in China. And in Slovenia, the antitrust authority has inspected publishing companies on suspicion of failure to notify a concentration.

Consumer & Retail

French competition authority issues its first-ever merger block

Late in August, the French competition authority decided to block E. Leclerc and Soditroy’s acquisition of joint control of a Géant Casino hypermarket in the conurbation of Troyes. The authority’s concerns were three-fold: (i) a reduction in the diversity of products available to consumers with the disappearance of Géant Casino from the area; (ii) price rises following the elimination of competition between the acquired hypermarket and the other E. Leclerc hypermarket in the area; and (iii) tacit coordination following the creation of a “balanced” local duopoly between E. Leclerc and Carrefour (both in terms of store surface areas and geographical location of the sales outlets).

The decision stands out as the first formal merger prohibition since the authority was given the power to veto deals in 2009. In the past, where necessary, the authority has used its power to impose conditions to address antitrust issues, or parties have abandoned deals. Why was this transaction different? It would appear that the answer is simple: no conceivable remedy bar prohibition would adequately allay the authority’s fears. Indeed, the authority felt that the parties’ offer to reduce the surface area of the Géant Casino store from 8,210m² to 6,000m² would in fact just reduce the product offering available to consumers. The end result is that the French authority has now joined the many others that have blocked deals, including in relation to supermarket acquisitions (most notably last year the UK’s Competition and Markets Authority blocked Sainsbury’s acquisition of Asda). Our analysis of merger control enforcement in key jurisdictions shows that 20 transactions were prohibited in 2019 and a further 20 were abandoned due to antitrust concerns – see our Global trends in merger control enforcement report for more details. Next up for the French authority is its decision on Aldi’s acquisition of 567 Leader Price (Casino) stores, referred for review from the European Commission.

Digital/TMT

European Commission to fight General Court annulment of Hutchison/O2 merger prohibition

In June, we reported on the General Court’s landmark ruling to overturn the European Commission’s prohibition of Three/O2. We commented that the Court’s clarification of the circumstances in which the Commission can prohibit transactions where they fall short of creating or strengthening a “dominant” player looks set to make it harder for the authority to block such deals. And, as a consequence, the judgment would invite speculation as to whether there is now scope for consolidation in the telecommunications sector and elsewhere. Interestingly, since the ruling was published, we heard Competition Commissioner Vestager say (in an interview with the FT) that there is “room for cross-border consolidation, the telco sector in particular”. Internal Market Commissioner Breton has also reportedly encouraged mergers in the sector. Despite this, and unsurprisingly – as we predicted – the Commission has now appealed the General Court’s ruling to the European Court of Justice. It will be fascinating to see what the EU’s highest court has to say about the matter.

Amazon/Deliveroo: UK CMA confirms it’s not afraid to tackle tech acquisitions

Amazon’s investment in Deliveroo has been caught up in a long, complex and controversial UK merger control review involving many plot twists and about-turns. It climaxed this month with the UK Competition and Markets Authority’s (CMA) unconditional clearance – granted over 14 months after the digital company acquired its stake in the UK food delivery firm. The fact that the CMA imposed a hold separate order (in June 2019) and opened an investigation (in October 2019) in itself raised eyebrows – Amazon had only acquired 16% of Deliveroo. Then the deal was pushed into phase 2 on the back of concerns over a reduction in direct and actual potential competition in fast-evolving and emerging markets: online restaurant food delivery – which Amazon had exited in 2018 – and online convenience grocery delivery. April brought another surprise: the CMA decided to provisionally clear the transaction on the basis of a Covid-19-related deterioration in Deliveroo’s financial position and its imminent market exit. Criticism from other market players and further evidence gathering followed. And in June it again decided to provisionally clear the investment, but this time on the basis that Amazon’s stake was not of a sufficient size to change Amazon’s incentives to compete independently against Deliveroo. The CMA does not believe, for example, that Amazon’s investment in Deliveroo would deter its separate re-entry or cause it to compete materially less aggressively. The CMA’s approval comes with a warning however: the authority would look again should Amazon acquire a greater level of control over Deliveroo.

What have we learnt from all of this?

The CMA will closely scrutinise digital acquisitions – even minority share purchases – especially when undertaken by one of the Big Tech companies. Another recent example is the CMA’s Facebook/Giphy
The CMA is keeping an eye out for creeping acquisitions – in this case the CMA noted that Amazon often builds upon an initial minority investment.
The CMA is not afraid to take an expansive approach to its jurisdiction over deals – here concluding that Amazon would exert material influence over Deliveroo as its views are likely to be given material weight by Deliveroo’s management and other shareholders. In other recent cases we have seen the CMA stretch the limits of its power to call in deals with an arguably limited UK nexus (Sabre/Farelogix and Roche/Spark Therapeutics).
The CMA will pore over internal documents – critically, the CMA found that “Amazon’s internal documents provide further context regarding its rationale, and indicate that its reasons for investing in Deliveroo were not merely financial” but also strategic as a potential first step toward a full acquisition, evidencing an email sent to Amazon’s CEO and CFO seeking approval for the investment. Internal documents showing strong competition between Taboola and Outbrain similarly fuelled the CMA’s June decision to take a closer look at their merger.
The CMA will listen to failing firm or failing division arguments but, while it will endeavour to respond quickly to assess the financial impact of the Covid-19 pandemic on businesses, going forward it will likely seek to be more sure of the full, longer-term consequences. As its latest guidance makes clear: such claims will only be accepted where supported by a material body of probative evidence, which the CMA will test thoroughly.
There are limits to the CMA’s ability to look ahead in dynamic tech markets – clear evidence and not just speculation of future competitive harm is vital to meet the phase 2 “balance of probabilities” burden of proof.

Federal appeals court overturns FTC’s Qualcomm win

Companies exercising market dominance – including licensors of standard essential patents (SEPs) – must tread carefully to avoid conclusions that “hypercompetitive” behaviour may stray into the realms of anti-competitive behaviour. Events in the U.S. relating to Qualcomm highlight what a tricky task this can be, with even the U.S. government itself divided over the company’s liability.

In May 2019, a U.S. district judge sided with the Federal Trade Commission (FTC) and found that Qualcomm’s licensing practices were anti-competitive. The behaviour condemned by the District Court included a policy of not providing rival modem chipmakers with licences to its SEPs, supplying chips only on condition that mobile manufacturers agree to its licence terms, charging unreasonably high royalty rates for SEPs and exclusive chip supply agreements (see our report for more information). The district court issued a worldwide injunction, among other things requiring Qualcomm to make its SEP licences available to rivals on fair, reasonable and non-discriminatory (FRAND) terms and to renegotiate many of its existing licences with smartphone manufacturers. The district judge made this finding despite the fact that the U.S. Department of Justice Antitrust Division (DOJ) and other federal agencies urged her not to adopt the FTC position. In August 2019, a federal appellate court put the district judge’s ruling on hold pending the outcome of Qualcomm’s full appeal. And, in August 2020, that appeals court has reversed the FTC win, saying the judge’s decision “went beyond the scope” of the Sherman Act. The appeals court held that only licensing Qualcomm’s SEPs to finished-product manufacturers such as smartphone suppliers, and not other competing chipmakers, is novel but not enough to establish illegal monopolisation. The court also determined that a breach of obligations to license SEPs on FRAND terms could be a breach of contract or patent law, but was not an antitrust violation. And it has found that the “no licence, no chips” policy and Qualcomm’s patent-licensing royalties did not impose an anti-competitive surcharge on the sales of chips by competitors. There may be more to come: the FTC is reportedly considering an application for a rehearing by the full appeal court, or may appeal directly to the Supreme Court, and potential class actions making similar allegations against Qualcomm as those levied by the FTC are moving forward.

Life Sciences

U.S. healthcare sector on merger control frontline

Now more than ever, preserving competition in healthcare markets is clearly a priority for the U.S. antitrust agencies. This month the U.S. Department of Justice Antitrust Division (DOJ) sued to block Geisinger Health’s partial acquisition of Evangelical Community Hospital – entered into back in February 2019 – following concerns that it would likely lead to higher prices, lower quality and reduced availability of inpatient hospital services for patients in central Pennsylvania. The DOJ’s complaint alleges that, after learning that Evangelical was interested in being acquired, Geisinger sought to acquire Evangelical in its entirety to prevent Evangelical from combining with another hospital system or with an insurer to better compete against Geisinger in the region. Instead, the “close competitors” entered into a complicated partial-acquisition agreement in part to avoid the antitrust scrutiny that a full acquisition would more likely bring. After the DOJ learned of the transaction, the parties agreed not to implement it pending the DOJ’s investigation. The DOJ’s complaint alleges that the partial acquisition – despite amendments responding to the DOJ’s concerns – still fundamentally alters the relationship between the parties and imposes “significant entanglements”, raising the likelihood of coordination and reducing the incentives for them to compete aggressively against each other. The DOJ points to: (i) Geisinger’s proposed 30% ownership interest in Evangelical; (ii) financial links, including Geisinger’s proposed USD100m investment in Evangelical; (iii) Geisinger’s rights of first offer and first refusal for certain transactions and joint ventures involving Evangelical; and (iv) sharing of competitively sensitive information. While the litigation is pending, a hold-separate agreement entered into in October 2019 remains in force.

The U.S. Federal Trade Commission (FTC), too, has its sights trained on a healthcare deal in Pennsylvania. In February, it sued to block Jefferson Health from acquiring Albert Einstein Healthcare Network, the two leading providers of inpatient general acute care hospital services and inpatient acute rehabilitation services in Philadelphia and Montgomery counties. The FTC argues that combining these hospitals would eliminate their incentive to compete for inclusion in health insurance companies’ hospital networks and reduce quality of care. The administrative trial is scheduled to begin in early September 2020 and a temporary restraining order and a preliminary injunction prevents the parties from consummating the merger.

Elsewhere this month, the Dutch Authority for Consumers & Markets (ACM) conditionally cleared elderly care provider Omring’s acquisition of rival Vrijwaard. To address ACM concerns that a full acquisition would severely reduce options for nursing care and daily activities for the elderly, three of Vrijwaard’s care locations in Den Helder must be transferred to a care provider that is not yet or hardly active in the city. And the UK Competition and Markets Authority (CMA) continues to monitor the implementation of conditions to its June approval of a completed private hospital merger – Circle Health’s acquisition of BMI Healthcare. Given Covid-19-related challenges, the CMA has allowed Circle longer than usual to divest its hospitals in Bath and Birmingham, and has most recently allowed Circle to temporarily redeploy or furlough certain employees pending completion and sale of the Birmingham hospital.

Related expertise

Antitrust and Competition

Antitrust and Competition