Crackdown on deals seen at both FTC and DoJ as disparity between review styles begins to fade

This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

--------------------------------------------------------------------------------------------------------

When the Federal Trade Commission (FTC) said it would seek an injunction to stop the proposed acquisition of closely held Talecris Biotherapeutics by Australia’s CSL Limited (ASX: CSL), the parties involved were surprised at what they thought was a very “unexpected outcome,” a source familiar with the situation told dealReporter.

On 27 May, the FTC stated that it would plan to strike down a merger between the two companies because competition in markets for certain plasma-derivative proteins would be whittled from three to two in the case of one product, and five to four in another. Additionally, the FTC’s complaint pointed generally to the fact that consolidation had trimmed competitors in the space to five in 2009 from 13 in 1990.

Though reports point to new hardball leadership at the Department of Justice (DoJ), the FTC could be vying for the title of new sheriff in town.

The agency has indicated that it would seek convergence with regulation at the European Commission, according to one attorney. The statutory bases for the two bodies are very different: US regulators must frame their findings within the Sherman Act or the FTC Act, while the EC can stop a merger cold on looser concerns of competition.

Convergence, then, the attorney said, would mean attempting to mirror the EC’s practice of using a more amorphous style of analysis to strike down a combination.

The Talecris/CSL case might have been one of those instances, the attorney said, where the FTC could seek injunction on a general diminishing of competition in that area.

Earlier in May, a DC district court granted the FTC its first preliminary injunction since 2002, enjoining a merger between CCC Information Services and Mitchell International. The injunction gives the FTC time to evaluate the more serious merits of the case, but it can doom a merger by causing the companies to walk away in avoidance of a lengthy and expensive legal battle. Talecris and CSL did just this, abandoning merger talks that had been underway since August 2008, and billing CSL the USD 75m breakup fee.

Antitrust advisors have long considered the DoJ review to be “less aggressive and more willing to listen to arguments about efficiencies,” said a second antitrust lawyer. For instance, the 2008 merger of US operations by SABMiller (LON: SAB) and Molson Coors (NYSE: TAP) was set to cut the number of domestic competitors from three to two, with the only major player against the pro forma beer distributor being Anheuser Busch. The DoJ under Tom Barnett, assistant attorney general for antitrust, ruled that competition from premium and import competitors was enough to level the playing field and easily waved the joint venture through.

With both agencies touting themselves as tougher regimes, any disparity might be fading.

“The differences are much fewer now than they were six months ago,” said the second antitrust lawyer.

Three deals have been holed up at the DoJ since Christine Varney, formerly of the FTC, has taken the chair: Metavante/Fidelity, Sun/Oracle and Ticketmaster/Live Nation.

With Metavante (NYSE: MV), the DoJ may be concerned the merger will increase costs for banks that outsource core processing services to third parties like Fidelity (NYSE: FIS) and Metavante. However, retailers and community banks are not challenging the planned acquisition, spokespeople for trade associations said.

In the Sun/Oracle matter, the parties are seeking remedies to ensure Java and MySQL remain fully open-source development platforms for the user communities, and that Oracle would continue to provide Java programming language. Programmers will likely seek commitments with respect to the support of Java and possibly seek the sale of MySQL.

The Ticketmaster (NYSE: TKTM) case was suggested to be an example of how the Administration rules on vertical cases, which as previously reported, are expected to be reviewed more strictly going forward. Whether the evidence of efficiencies will be strong enough argument for the authorities remains to be seen.

On both sides, the battleground is likely to move to the courts, a third lawyer said. The FTC is expected to seek more injunctions through the judicial use of its administrative powers, and the DoJ could find itself having to defend its arguments in appellate courts. The major difference between the bodies continues to be the power of the FTC to make its arguments via its own administrative powers, while the DoJ must argue in an outside court.

The first attorney said that it might be too soon to glean the power of regulators as judiciary.

“It’s hard to say whether [injunctions are] going to be used more in the future,” the lawyer said. “The thing that’s clear is that they’re both looking at deals more strictly.”

--------------------------------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@dealreporter.com or call Europe/EEMEA: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714