The FTC and Whole Foods have reached a settlement argeement. In short, “Whole Foods agreed to divest itself of 31 Wild Oats stores in 12 states, including 19 stores that already have been closed, and one Whole Foods store. Whole Foods also agreed to relinquish the rights to the Wild Oats brand, which could be sold to a potential competitor.” More at the WSJ Law Blog.
As the NY Times reported last week, the Treasury Department has agreed to take a 30 to 40 percent stake in Citigroup; the acquired securities will be voting common stock. Following up on my recent posts about HSR reportability, Jon Baker raised this interesting question:
If the US Government owns a substantial equity stake in one bank and then acquires a substantial equity stake in a competing bank, would it have to file HSR notification (assuming that a private firm in the same situtaiton would be required to file)?
Let me start by saying that the fact of a substantive overlap (a stake in another bank is already held by the acquiror), does not affect HSR reportability, which turns solely on whether there has been an acquisition (of sufficient size) between persons (of sufficient size), to which no exemptions apply. HSR reportability uses formal criteria that are linked only indirectly to the question under Section 7: will the acquisition substantially lessen competition?
So, what are the exemptions that apply to acquisitions of voting securities by governments? There are three:
The first, §7A(c)(4), exempts “transfers to or from a Federal agency or a state or political subdivision thereof.” If the Treasury Department, which is officially an “executive agency” of the U.S., will acquire the voting securities directly, the acquisition is exempt from HSR reportability. That is the easy part of the answer about the federal bank bailout.
The second exemption is buried in the Rules’ definition of “entity.” Rule 801.1(a)(2) defines “entity” as just about everything,
Provided, however, That the term “entity” shall not include any foreign state, foreign government, or agency thereof (other than a corporation engaged in commerce), nor the United States, any of the States thereof, or any political subdivision or agency of either (other than a corporation engaged in commerce).
It’s a backward way of exempting acquisitions by governments, states, or the US: If the entity whose assets or voting securities are being acquired, or who is acquiring assets or voting securities, isn’t an “entity,” then whoever ultimately controls the non-entity can’t be a person. (Person means the ultimate parent entity and all entities which it controls directly or indirectly, 801.1(a)(1); more on this in my HSR Primer posts.) No entity, no acquiring or acquired person, no acquisition, no filing obligation.
The definition in 801.1(a)(2) raises a few questions, some of which have come up in the FTC’s informal interpretations. What exactly are “political subdivisions or agencies of either” the U.S. or the States? Are agencies of subdivisions of States, such as the agency of a municipality, not “entities”? What about multistate agencies, such as the Port Authority of New York and New Jersey? The correct answer is that the exemption should apply, as Axinn, Fogg, Stoll, Prager, Nisa point out in §6.09[4] of their treatise.
The question that is harder to answer is what “engaged in commerce” means. (Note the drafting oversight that restricts the exception from the exemption to corporations - a State-owned LLC or other unincorporated entity engaged in commerce is not an “entity,” a State-owned corporation engaged in commerce is.) Engaged in “commerce” must mean something other than interstate commerce, which is defined in 801.1(l), with reference to the statutory jurisdictional grants under the Commerce Clause. The definition of “entity” in the Rules, however, distinguishes between governmental and commercial activities. The first example that springs to mind here at The Antitrust Review is the Hofbräuhaus in Munich, which is owned by the State of Bavaria (did you know that brewing wheat beer or “Weissbier” was a ducal privilege and that the Hofbräuhaus held the monopoly on brewing it for over 200 years? Antitrust is everywhere). The subtext behind the definition of “commercial” for purposes of exempting government corporations from HSR reportability should be the state-action doctrine, as formulated in Parker v. Brown and Midcal. That line of cases shows that we are reluctant to exempt state and city governments from antitrust scurtiny.
There is a third exemption for acquisitions by governments, 802.52. It applies only to foreign governments, and I won’t go into any detail here. But note that foreign states, governments, and their agencies (other than a corporation engaged in commerce) also are not “entities” under the Rules, so that 802.52 only becomes relevant for corporations engaged in commerce whose ultimate parent entity is a foreign state, government, or agency.
The answer to the original question about the bank bailout is that HSR will most likely not apply. But if the banks are corporations engaged in commercial activity, they will be “entities” under the Rules and HSR potentially applies as long as the acquisition isn’t a “transfer to or from a Federal agency or a State or a political subdivision thereof” (in other words, unless the statutory exemption of §7A(c)(2) applies, which the Rules cannot abrogate). HSR reportability of course does not affect the bailout’s legality under §7 Clayton Act one way or another.
Here is a summary for the graphically inclined:
Governments as entities under HSR. Click to enlarge
In the last post of this series, I posed a challenge: to find the UPE, or ultimate parent entity, and acquired person in a hypothetical. To find the answer, three steps are necessary:
Remember 801.1(c)(8): A person holds all assets and voting securities held by the entities included within it; in addition to its own holding, an entity holds all assets and voting securities held by the entities which it controls directly or indirectly.
In the hypothetical the acquired entity is H Inc. It is the corporation whose voting securities are being acquired. Tracing the chain of control up, you’ll find three UPEs (marked with UPE crowns): Mrs. Z, Mr Z, and A Inc.
click to enlarge
Some explanations:
Once the UPEs have been identified the next step follows: tracing control down until all controlled entities have been identified. The following graph shows the analysis for A Inc only. (The other two UPE’s, Mrs. Z and Mr Z, each control H Inc, I Inc, and J Inc.)
click to enlarge
The only additional explanation required here concerns G GP, the general partner entity of G LP (G GP is some unincorporated entity, like an LLC). G GP is controlled by E Inc, which has the right to 51% of G GP’s profits or assets upon dissolution. But G GP does not control G LP for HSR purposes, even though in practical terms G GP will make all business decisions of G LP, as its general partner. The Rules’ definitions of control are rigid and formalistic: G GP determines the competitive behavior of G LP, but only profits and assets upon dissolution are considered HSR control. Since 99% of those rights rest with the dispersed limited partners, no one controls G LP. (This is a common situation for investment funds organized as limited partnerships, or other unincorporated entities where governance rights and economic rights are divorced from each other.)
In closing it’s important to emphasize that control is not exclusive under HSR. An entity may be controlled by more than one other entity. For example, a corporation may have a 50%+ shareholder but another person who may appoint the majority of directors. In fact, a corporation may be controlled by a maximum of 4 entities (ignoring spouses as shareholders):
An unincorporated entity can also be controlled by a maximum of 4 entities:
(The right to assets upon dissolution refers to the residual distribution after all claims and preferences have been resolved; if the rights are not clear, determine control of an unincorporated entity as if it were being dissolved now.)
The next post in this series will deal with unincorporated entities in more detail, answering the question whether they are “assets” or “voting securities” under §7A.
Previous posts: §7 and HSR. The Basic Test. Parsing Acquisitions. Getting to the Person.
The last post left off by listing the three steps required to parse an acquisition for HSR purposes: (1) Identify all acquisitions in the transaction, (2) eliminate the non-reportable ones, and (3) find the acquiring and acquired persons. It’s that last step this post is about.
The Rules provide a set of nestled definitions that lay out how you get from the the acquisition to the person. This involves an up-down movement through the corporate hierarchy of entities. Starting with the entity that acquires or is being acquired (remember this means the entity which holds the assets being acquired or the issuer whose voting securities are being acquired), you follow the chain of control up until you reach the peak, or ultimate parent entity (UPE), which is an entity that itself isn’t being controlled in HSR terms.
An entity is virtually anything, including individuals and any sort of business entity, except U.S., state, and foreign governments or their subdivisions or agencies (801.1(a)(2) - check this only if you come across something weird). Once the UPE is reached, every entity controlled by the UPE, directly or indirectly, is included in the person (801.1(a)(1)). That’s the down movement. The real work is determining control, which differs from what one might expect in important ways (801.1(b)). Here is a chart showing the nestled definitions:
click chart to enlarge
Corporations can be controlled in two ways: Either holding 50% or more of the outstanding voting securities, 801.1(b)(1)(i), or having the contractual power to appoint 50% or more of the directors, 801.1(b)(2). (To hold means to have beneficial ownership, direclty or indirectly.) Unincorporated entities, like partnerships or LLCs, can only be controlled in one way: Having a right to 50% or more of profits or assets upon dissolution, 801.1(b)(1)(ii). The right to appoint a management board or a similar governing body of an unincorporated entity does not give control over the entity for HSR purposes. That’s a point where HSR diverges from what one would expect if control were defined as the actual ability to affect competitive decisions (as it should for §7 purposes). In fact, a subjective test of control was originally proposed for HSR but ultimately rejected in favor of an imperfect but clear-cut rule. The same reasoning led the FTC to look to profits/assets-upon-dissolution only when the treatment of unincorporated entities was revised in 2005.
In addition to these rules about control, there are few attribution rules, for example: [1] The holdings of a spouse are attributed to the other spouse. [2] A trust is usually controlled by the trustee(s), unless it isn’t (for example, because the trust is revocable), 801.1(c)(3)-(5). And [3] a person holds all assets or voting securities held by entities included within it—that is another way of expressing the down movement of including everything that the UPE controls, directly or indirectly, within the person.
So here is a little challenge: The graph below shows a corporate structure chart. The voting securities of H Inc. held by F LLC are being acquired. Who is the UPE? What is included in the acquired person? To answer those to questions, it’s first necessary to identify the UPE in the up movement, tracing lines of control. Then, in a down movement, everything controlled by the UPE is swept into the acquired person. Find the answers in the next post.
click chart to enlarge
Previous posts: §7 and HSR. The Basic Test. Parsing Acquisitions.
Before continuing this series of posts about the Hart-Scott-Rodino Antitrust Improvements Act (HSR), here are some links to useful materials. The most basic materials are the HSR statute, §7A Clayton Act (15 USC 18a), and the rules implementing HSR: Coverage Rules (16 CFR 801), Exemption Rules (16 CFR 802), and Transmittal Rules (16 CFR 803). You will need both statute and rules to follow along with these HSR Primer posts. The FTC’s Premerger Notification Office provides much helpful material, including links to the statute and rules, as well as to the Statement of Basis and Purpose and formal interpretations, here. The form and instructions can be found here. There are also useful introductory guides (using unadjusted thresholds), a searchable data base of informal interpretations, and a FAQ. As a reminder, these HSR Primer posts are eclectic and make no pretense to provide a complete guide to HSR reportability.
Parsing Acquisitions. The world according to HSR is flat. It is two-dimensional in two important respects:
This binary view of acquisitions goes back to the magic language of §7A, and it means that within the transaction, each acquisition must be identified, and for each the acquired and acquiring person, before the jurisdicitonal SOT and SOP can be applied. While the Rules identify entities (within persons) and issuers, the question of where an acquisition is located, and therefore the question of reportability, turns exclusively on the acquired and acquiring person. These terms are not identical with “buyer,” “seller,” “target,” or “parent” that corporate agreements might identify. In a second step, those acquisitions that will not lead to reportability can be eliminated. To see how this works, here are a series of basic situations.
Assets for cash. The most basic situation is an asset purchase, in which the Acquiring Person acquires assets (say a factory) from the Acquired Person for $350 million in cash. There are two acquisitions: the first of the factory (assets), and then of cash. Rule 801.2(e) make clear that both these acquisitions must be analyzed separately:
Whenever voting securities or assets are to be acquired from an acquiring (!) person in connection with an acquisition, the acquisition of voting securities or assets shall be separately subject to the act.
Once the acquisitions have been identified, the second step is to eliminate acquisitions that will not lead to reportability. The most important instance is that the payment of cash for voting securities or assets is not a reportable acquisition. The Rules make this point by stating that “cash shall not be considered an asset of the person from which it is acquired,” 801.21(a), with the effect that in the example above, there is only one acquisition: that of the factory (assets of Acquired Person).
Voting securities for cash. The second basic situation is a stock purchase, in which Acquiring Person acquires stock of Target from Acquired Person for cash. (As in the previous example, the cash paid as consideration is not considered an asset of the person from which it is acquired, and thus won’t lead to a reportable acquisition.) The important point is that Target is not the acquired person, even though it is the entity that is being bought. The reason is Target is controlled by Acquired Person, and that for HSR “Person” means ultimate parent entity—another delightful HSR construct that will be topic of a separate post. For now it’s sufficient to note Rule 801.2(b):
… the person(s) within which the entity whose assets or voting securities are being acquired [here: Target] is included, is an acquired person.
To be “included within” means controlled by in HSR.
Voting securities for voting securities. The next example shows the simplest case in which the binary view of acquisitions leads to breaking up a transaction into two acquisitions:
Here, A acquires the voting securities of Target from B in a stock-for-stock deal. B receives newly-issued voting securities in A as consideration. Again, there are two potential acquisitions, but since this time both acquisitions are of voting securities, 801.21(a) doesn’t apply. The result is that there are indeed two reportable acquisitions. A is the Acquiring Person with respect to the voting securities of Target, but the Acquired Person with respect to its own newly-issued voting securities. Conversely, B is the Acquired Person with respect to Target’s voting securities, but the Acquiring Person with respect to A’s voting securities. Rule 801.2(c) states:
For purposes of the act and these rules, a person may be an acquiring person and an acquired person with respect to separate acquisitions which comprise a single transaction.
And yes, in this situation, A and B would file just one form each as both acquired and acquiring persons (watch out for items 5-8, which require only a limited response from acquired persons).
To understand the complicated terms of acquisition, acquiring and acquired person under HSR, it’s helpful to consider the starting point: enforcement of §7 Clayton Act, which aims at acquisitions that lessen competition. For example, the transfer of cash is competitively neutral, and shouldn’t be the reportable, which explains 801.21(a). (The SBP says that “cash generally lacks competitive significance.”) Similarly, looking not to buyers or sellers or similar corporate terms, but—through the construct of acquiring and acquired persons—at who currently and after the transaction will control the assets or voting securities goes to the competitively-relevant question of how the transaction will affect the ability to make competitive decisions (such as raising prices). Who will make competitive decisions before and after the transaction? is a fun question to ask, but only an imperfect proxy for determining HSR reportability.
Voting securities beat assets. The indirect concern with control also explains the rule that voting securities are never assets, even though an investment in a company is certainly an asset for bookkeeping purposes. Rule 801.21(b) states:
Neither voting or nonvoting securities nor obligations referred to in section 7A(c)(2) [things likes bonds and mortgages] shall be considered assets of another person from which they are acquired.
This rule means that in terms of parsing acquisitions, voting securities beat assets, because the voting securities that are being acquired are considered to be acquired from the person in which the entity whose voting securities are being acquired is included (801.2(b)). That, incidentally, is the sort of sentence only long exposure to HSR can lead one to write or understand. So here is a graph to explain it:
Mr. X sells his minority stake in Issuer to Acquiring Person. He doesn’t have to file HSR (because he doesn’t control Issuer, or, in HSRish, because Issuer is not an entity included within him). But Issuer’s parent, Acquired Person, does have to file. (To make sure Acquired Person knows about the sale and its filing obligation, Acquiring Person would have to give Acquired Person notice in these situations, see 801.30(a)(5), 803.5(a).) If the minority stake were treated as an asset of Mr. X, Mr. X himself would be the acquiring person (and UPE), Issuer wouldn’t be included in the acquiring person (since Mr. X doesn’t control Issuer), and the potential competitive significance of the acquisition would not be apparent in the filing. That’s why voting securities are never asset.
To sum up, these are steps required to parse a transaction into HSR-relevant acquisitions. Once this work is done, the jurisdictional tests can be applied.
Previous posts: HSR and §7. The Basic Test.
Continuing my series of posts about the Hart-Scott-Rodino Act, here is a discussion of the basic test of reportability under HSR.
§7A Clayton Act contains this magic language:
Except as exempted, no person shall acquire, directly or indirectly, any voting securities or assets of any other person, unless both persons file notification and the waiting period has expired, if [the commerce, size-of-transaction, and size-of-person tests are met].
The following is a graphic representation of this relatively simple structure.
The graph shows the basic steps in the analysis: (1) Acquistion of voting securities or assets, (2) Size of Transaction test (SOT), (3) Size of Person test (SOP), and (4) Exemptions. SOT and SOP require an application of the annually-adjusted jurisdictional thresholds (and I’ll post about them in more detail in the future). The basic structure shows that SOT and SOP are linked in such a way that SOP only applies to “medium” size transaction, and is inapplicable if the size of the transaction is either equal to or less than the lowest threshold (of currently $63.1 million) or exceeds the largest threshold (of currently $252.3 million).
The problem with applying this basic structure in determining reportability is that the actual tests are trivial, but the steps required to arrive at a point where the tests can be applied is difficult. HSR terms such as acquisition, acquiring and acquired person, voting securities, or assets are loaded; the rules to determine the size of a transaction are complicated and often require parsing through insanely convoluted aggregation rules to determine what must be included. The different issues also don’t always appear at a logically consistent point in the analysis. For example, the acquisition of debt bonds is not reportable, but is that because bonds aren’t “voting securities or assets” or because bonds are exempted under §7A(c)(2), or both? As a result, reportability is more akin to a complex web than to a flow chart. Sometime it makes sense to start with the SOT, sometimes an exemption is the best starting point (like §7A(c)(3)/802.30, intraperson transfers). Still, it is helpful to recall that there is a basic structure that underlies the analysis.
There is one test I don’t suggest you waste time on, and that I didn’t give equal space in the graph above: the commerce test of §7A(a)(1). It is so broad as to apply virtually always (if you have seen an acquisition of more than $50 million that doesn’t meet the commerce test, please drop a line). HSR applies not only to persons engaged in commerce (which means interstate commerce or foreign commerce, see §12 Clayton Act or §4 FTC Act, alternatively referenced in Rule 801.1(l)), but also to persons engaged in activities affecting commerce. This is stretching the Commerce Clause to its limits. There is no court guidance an what a person might look like that isn’t engaged in interstate commerce, but that affects it. HSR’s commerce test is also broader than other such tests in antitrust law: the Sherman Act requires that the prohibited activity affect commerce, Robinson-Pattman that the “sale” be in commerce, and §7 Clayton Act at least requires that both persons must be engaged in commerce or activities affecting commerce. Under HSR it is sufficient that either acquiring or acquired person, or any entity included in them, are so engaged, as §7A(a)(1) and Rule 801.3 make clear. The HSR commerce test wasn’t exactly designed to restrict the Act’s applicability, and the following graph showing the structure of the HSR commerce test is the last time I’ll mention it.
Previous post: HSR and §7
As an interesting holiday present, the FTC on December 23, 2008 announced higher civil penalties, including penalties for the violation of the premerger notification requirement under the Hart-Scott-Rodino Act. From previously $11,000 per day of violation, the penalties were raised to $16,000 per day. The press release is here.
UPDATE: I had a typo in the new penalty amount: It’s $16,000. Thanks for the tip!
If you think it’s bad having to admit at parties that you are a lawyer, try explaining that what you deal with is called the Hart-Scott-Rodino Antitrust Improvements Act of 1976. At least you won’t be stuck talking about work all night. But if there isn’t much glamor in HSR work, there certainly is the devil in it: The Act and the Rules accompanying it are hopelessly complicated and convoluted. Hopelessly? Not quite. There is the new edition of Axinn/Fogg/Stoll/Prager/Pisa. And I am planning a series of posts about HSR, and specifically about questions of reportability, to show some principles, shortcuts, and tricks that I have found helpful. I’ll add the disclaimer now that it will all be eclectic and some of it apocryphal. Probably none of it will be news to those who deal with HSR regularly. Please let me know your comments.
The big question of course is, to what extent does §7 guide the interpretation of HSR? §7 Clayton Act forbids acquisitions of voting securities or assets that will substantially lessen competition or tend to create a monopoly. The HSR Act, as a procedural statute, seeks to aid the enforcement of §7 by requiring the premerger notification of transactions that are likely to run afoul of §7. It is obviously easier to prevent a merger than it is to undo it. But how likely must a transaction be to violate §7 in order to justify premerger notification? There are two opposing interests at work: The interest of the enforcement agencies is to cast the net wide in order not to miss anything. The interest of merger parties is not to incur the costs of the premerger notification process needlessly. But it is also in our general interest not to make the premerger notification process too costly, since inefficiencies in the process by definition will deprive consumers of efficiency-enhancing benefits. The slightly simplified view of antitrust lawyers is that there are only two reasons for a merger or an acquisition: To enhance efficiency or to increase market power (thus potentially lessening competition and harming consumers). If a transaction that doesn’t fall under §7 is subject to premerger notification requirements, the efficiencies flowing from the transaction are delayed, temporarily depriving consumers of the benefit. This trade-off between prevention and efficiency is a necessary feature of a premerger notification program, and the only question is: how can we optimize the selection of mergers that should be notified and subject to a waiting period?
This graph shows the overlap between §7 and HSR reportability. HSR is overinclusive, since it requires the notification of transactions that have little or no potential of substantially lessening competition (that will be theme throughout these posts). But it is also underinclusive, since there are transactions that do (or could) lessen competition but that are not subject to reporting requirements. The primary example are transaction that fall below the minimum threshold of currently $63.1 million. The graph shows the three tools that HSR gives the antitrust agencies: a waiting period of usually 30 days (15 days for cash tender offers), access to the parties’ relevant documents (specifically those discussing markets, market shares, competition, competitors and so forth), and Requests for Additional Information and Documentary Evidence, known as Second Requests, which function as subpoenas and interrogatories that the agencies may issue without recourse to the courts.
The size of the green circle, for transactions violating §7, is probably too large in the graph, as the following graph suggests. The information comes from the DOJ/FTC Annual Report for Fiscal Year 2007.
The statistics show that about 1.5% of all reportable transactions are ultimately challenged by the agencies. The empirical question raised is whether the competitive harm to consumer welfare of those 1.5% outweighs the cost of premerger notification imposed on the other 98.5% transactions. But phrasing the question that way skews it. It will be hard to quantify the preventive effect of the premerger notification requirement: anti-competitive transactions are restructured or abandoned because it is clear to the parties that the agencies would challenge them after HSR notification has been filed. My hunch is that the preventive effect is significant and significantly higher than it would be if all §7 enforcement occurred post-closing; the HSR Act therefore is not ludicrously broad in its reach.
Rather, the message is that in interpreting HSR’s notification requirement, the ultimate reach of §7 should be kept in mind and the reportability of transactions that cannot even potentially violate §7 avoided.
I am declaring today HSR Day. After the announcement of the new adjusted thresholds for 2009 came out, the Third Edition of Acquisitions Under the Hart-Scott-Rodino Antitrust Improvements Act: A Practical Analysis of the Statute & Regulations landed on my desk.
This trusted and indispensible resource for anyone who deals with premerger notification issues under HSR is now in three volumes, which I hope will make it a bit handier—the most relevant discussions are in Volume 1, and Volumes 2 & 3 are for occasional reference. (Volume 2, for example, contains the Statement of Basis and Purpose—or SBP, as it is known to HSR junkies.) The Third Edition adds Joe Nisa as an author, who is acknowledged in the Introduction as a primary contributor to the revised work. The treatise is published by the Law Journal Press, and more information can be found here. Congratulations to the authors! I’ll blog about my impressions as I’ll work my way through the Third Edition.
The final reason this is HSR Day on the Antitrust Review is that I will be kicking off a series of posts about HSR and the U.S. premerger notification process. The posts will be geared toward those who want a quick understanding of HSR filing requirements; I also hope to share some shortcuts and tricks for getting the question “Do we have to file?” right.
Happy HSR Day!
The FTC has announced the new adjusted HSR thresholds. Every year the thresholds are adjusted, up from the original amounts in §7A Clayton Act. Adjustments will be effective 30 days after publication. The FTC’s press release is here.
HSR ORIGINAL THRESHOLD AND ADJUSTED THRESHOLD
The thresholds for §8 Clayton Act (Interlocking Directorates) will also be adjusted, as follows:
CLAYTON ORIGINAL THRESHOLD AND ADJUSTED THRESHOLD
Long time readers know that if there is one thing we at Antitrust Review like more than antitrust, it is beer. Today, the two came together. And yes, we will party like it is 1999 tonight.
The AP (via the Washington Post) reports:
The Justice Department approved a $52 billion beer buzz Friday, allowing Belgian-based InBev SA to buy out Anheuser-Busch and create the world’s largest brewer.But InBev’s buzz comes with a slight hiccup: it must sell subsidiary Labatt USA before regulators let the merger go through.
That’s because Anheuser-Busch Cos. Inc. brews Budweiser and Bud Light compete directly with Labatt Blue and Labatt Blue Light in upstate New York. Without the sell-off condition, the Justice Department said beer prices would increase in metropolitan Buffalo, Rochester, N.Y., and Syracuse, N.Y.
Today, the United States Court of Appeals for the District of Columbia reversed District Court’s denial of an injunction. The Court stated:
The FTC sought a preliminary injunction, under 15 U.S.C. § 53(b), to block the merger of Whole Foods and Wild Oats. It appeals the district court’s denial of the injunction, which we reverse. We do so reluctantly, admiring the thoughtful opinion the district court produced under trying circumstances in which the defendants were rushing to a financing deadline and the FTC presented, at best, poorly explained evidence. Nevertheless, the district court committed legal error in assuming market definition must depend on marginal consumers; consequently, it underestimated the FTC’s likelihood of success on the merits.
The decision is available here. I am sure we will have more about this decision later.
Earlier today, DOJ approved the XM-Sirius merger. The Washington Post reports:
The deal was approved without conditions despite opposition from consumer groups and an intense lobbying campaign by the land-based radio industry.The combination still requires approval from the Federal Communications Commission, which prohibited a merger when it granted satellite radio operating licenses in 1997.
The Justice Department, in a statement explaining its decision, said the combination of the companies won’t hurt competition because the companies are not competing today. Customers must buy equipment that is exclusive to either XM or Sirius, and subscribers rarely switch providers.
“People just don’t do that,” said Assistant Attorney General Thomas Barnett, in a conference call with reporters.
The government also appeared to endorse the argument of the companies that they compete with other forms of audio entertainment, including “high-definition” radio, Internet-based radio stations and even devices like Apple Inc.’s iPod.
“The likely evolution of technology in the future, including the expected introduction in the next several years of mobile broadband Internet devices, made it even more unlikely that the transaction would harm consumers in the longer term,” the Justice Department said.
Update: The Department of Justice has released a statement on its website about the merger.
The FTC announced this morning that:
it will not seek to block Google Inc.’s proposed $3.1 billion acquisition of Internet advertising server DoubleClick Inc. In a 4-1 vote to close its eight-month investigation of the transaction, the Commission wrote in its majority statement that “after carefully reviewing the evidence, we have concluded that Google’s proposed acquisition of DoubleClick is unlikely to substantially lessen competition.”
The FTC has also posted online the statment of the Commission, the Dissenting Statement of Commissioner Harbour, the Concurring Statement of Commissioner Leibowitz, the Closing Letter to Counsel for Google Inc., and the Closing Letter to Counsel for Hellman & Friedman Capital Partners V, LP (i.e., DoubleClick).
Antitrust enforcers at the Federal Trade Commission squared off yesterday against lawyers for Austin-based Whole Foods in a second and final day of arguments before U.S. District Judge Paul Friedman. In the judge’s hands rests the fate of Whole Foods’ pending $565 million purchase of Boulder, Colo., rival Wild Oats. FTC lawyers sued in June to block the deal, arguing that it will lead to less competition in what they call “the premium and organic” supermarket sector. The FTC maintains that the purchase by Whole Foods will increase prices and reduce quality and service in as many as 25 markets across the United States, including Washington, because it expects the combined company to shutter several Wild Oats stores and back away from plans to open many new ones. “Consumers are unquestionably better off if there is vigorous competition,” FTC lawyer Michael J. Bloom told the judge. “This transaction deprives consumers of choice. That is unambiguously anticompetitive.” Company officials say the government’s analysis is “fatally flawed” and ignores efforts by such rivals as Safeway, Wegmans, Harris Teeter and Trader Joe’s to stock their shelves with high-quality vegetables, baked goods and prepared meals to meet growing consumer demand. Moreover, Whole Foods lawyers argue, the merger would not raise prices across the board because Wild Oats stores already charge more than their rivals. The deal “is not going to alter Whole Foods prices in any way,” company lawyer Paul T. Denis said yesterday. “Whole Foods prices are lower than Wild Oats prices.” The judge is expected to issue a ruling in the next few weeks. Based on turnout over two days of oral argument this week, the decision will be hotly anticipated. So many lawyers, market analysts and reporters stuffed the courtroom that officials opened an overflow room with an audio feed.
Check it out.
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