Litigating for Leverage? Merger Enforcement in 2013

, New York Law Journal

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Shepard Goldfein and James A. Keyte
Shepard Goldfein and James A. Keyte

The year 2013 was another year of robust merger enforcement at the Department of Justice Antitrust Division and the Federal Trade Commission (FTC). The agencies have shown they are quite willing to litigate to obtain their desired enforcement results when, from their perspective, a transaction is likely to substantially lessen competition in violation of Section 7 of the Clayton Act. The Antitrust Division, which went five years without litigating a single merger case in the early 2000s, has demonstrated its revitalized enforcement approach by challenging multiple high-profile transactions in 2013. The agencies have also continued to challenge non-reportable and consummated transactions, a reminder that all transactions, no matter how small, are subject to the agencies' watchful eyes.

While this uptick in merger enforcement continues a shift from the Bush administration, it also is part of what many practitioners perceive to be a new tactic by the agencies: aggressively litigating with at least an eye toward increasing settlement leverage.1 Indeed, given what appears to be a new agency trend, antitrust practitioners have begun to question whether this increase in merger challenges represents a subtle change in enforcement policy and, if so, whether the approach is affecting risk assessment and outcomes.

In any event, in this environment, it is critical for a company contemplating a merger to understand potential antitrust litigation risk and to assess thoroughly the feasibility and impact of potential divestiture scenarios as early as possible in the analysis—certainly before a deal is struck that sets in stone the allocation of antitrust risk between the parties. Moreover, considering the recent experiences in American/US Airways, ABI/Modelo and Ardagh/SGC, any potential merging party—especially one operating in a concentrated industry—must be prepared to litigate, if not only to solidify positioning in post-complaint settlement discussions.

Below, we outline several of the agencies' litigated challenges to high profile transactions in 2013.

HSR Reportable Transactions

The agencies challenged several transactions that met the filing thresholds of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act).

American/US Airways. In August 2013, the Justice Department, along with six state attorneys general, filed a suit alleging that the proposed $11 billion merger between US Airways Group and American Airlines' parent corporation, AMR Corp. (American), would substantially lessen competition for the sale of scheduled air passenger services in hundreds of alleged city pair markets throughout the United States, and in the alleged market for takeoff and landing slots at Ronald Reagan Washington National Airport (DCA).2 (The authors' firm represented AMR's Official Committee of Unsecured Creditors in relation to this transaction.)

The Justice Department further alleged that the merger would remove US Airways as a price maverick in certain markets, and would otherwise facilitate coordination among the remaining network carriers—including Delta, United and the new American—leading to higher fares, higher fees and reduced service.3

In order to resolve the litigation, the parties entered into a proposed settlement with the Justice Department and plaintiff states under which the parties undertook slot divestitures at DCA and New York LaGuardia International Airport, and gate divestitures at five hub airports across the country.4 The parties also agreed, with certain exceptions, to maintain historical operations at their hubs for a period of three years and provide daily scheduled service from one or more of their hubs to airports in each of the plaintiff states for a period of five years.

ABI/Modelo. In January 2013, the Justice Department sued to enjoin the merger between Anheuser-Busch InBev SA/NV (ABI) and Grupo Modelo S.A.B. de C.V. (Modelo) on the grounds that ABI's $20.1 billion acquisition of the remaining interest in Modelo that it did not already own would substantially lessen competition in the market for beer in the United States as a whole, and in at least 26 metropolitan areas across the United States. (The authors' firm represented ABI in relation to this transaction.)5

In response, the parties renegotiated the terms of their agreement and subsequently reached an agreement with the Justice Department that resolved the department's concerns largely as a result of the terms of the restructured transaction. In ABI/Modelo, the parties agreed to a perpetual license to certain Modelo brands as well as to the divestiture of Modelo's Piedras Negras brewery and its interest in Crown Imports, to Constellation Brands Inc.6

Ardagh/SGC. The FTC has employed a similar approach, suing to enjoin Ardagh Group S.A.'s $1.7 billion acquisition of Saint-Gobain Containers (SGC), in July 2013. The FTC alleged that the merger between Ardagh and SGC would reduce competition in the U.S. markets for glass containers for beer and spirits, and that reducing the number of major competitors would facilitate coordination and result in supracompetitive prices that would harm consumers.7 As of publication, Ardagh/SGC is scheduled to begin an administrative trial in the spring of 2014. While the parties remain in negotiations with the FTC,8 the FTC's conduct to date in negotiations and the parallel administrative proceedings in Ardagh/SGC has been consistent with the agencies' strategy of optimizing negotiating leverage through aggressive litigation. (The authors' firm represented ABI as a third party in relation to this transaction.)

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