The OFT has referred Great Britain’s aggregates, cement, and ready-mix concrete markets to the U.K.’s Competition Commission, an independent body that conducts in-depth investigations into mergers and markets.

The OFT, which has been investigating these markets since 2010, announced that it has concerns that the markets “are not working well.”  In particular, the OFT notes that  five major players account for upwards of 90% of the cement market, 75% of aggregates sales, and around 70% of ready-mix production.

The big five firms are London-based Anglo American Plc, Germany’s Heidelberg Cement AG, Switzerland’s Holcim Ltd., Paris- based Lafarge SA, and Mexico’s Cemex SAB.

The OFT also believes that there are high barriers to entry, vertical integration, and multiple contacts and information exchanges across the markets.

If the Competition Commission concludes that any feature or combination of features in these markets prevents, restricts or distorts competition, the Commission must seek to remedy the problems that it identifies either by introducing remedies itself or by recommending action by other British agencies.

PoolCorp is a major distributor of commercial and residential swimming pool supplies, products, and equipment.  According to the FTC complaint in In the Matter of Pool Corporation, PoolCorp is the “largest nationwide buyer of pool products, commonly representing 30 to 50 percent of a manufacturer’s total sales.”  In local markets, PoolCorp allegedly has had “a market share of approximately 80 percent or higher for at least the past five years.”    

The FTC alleged that PoolCorp “unlawfully maintained its monopoly power by threatening to refuse to deal with any manufacturer that sells its pool products to a new distributor entering the market, thereby foreclosing potential rivals from an input necessary to compete.”  The Statement provided by Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez in support of the Complaint and Order highlights a lack of independent business reasons or efficiency justifications for the alleged conduct. 

Commissioner J. Thomas Rosch provided a Dissenting Statement in which he claimed there was a lack of evidence of any violation.  In particular, Commissioner Rosch noted that “no entrants were actually excluded” from the markets at issue and that there was “no consumer injury” in this case.  Moreover, Commissioner Rosch found “legitimate reasons” for manufacturers not to sell to new entrants, such as a new entrant’s failure to demonstrate that it offers “adequate facilities, a history of successful operations, and a favorable credit history ….” 

PoolCorp has executed a Consent Agreement requiring particular conduct and reporting practices.

The proposed changes deal with Parts 2 and 4 of the FTC’s Rules of Practice and are designed to improve investigations and to keep up with changes in electronic discovery.

The agency noted that the Part 2 rules were in need of reform because of concerns that modern discovery has become a source of delay in its investigations, especially because “information is no longer accurately measured in pages, but instead in megabytes” and because “parties can no longer complete searches by merely looking in file cabinets and desk drawers.”  The FTC is re-examining the rules to “not only account for the widespread use of ESI, but also to improve the efficiency of investigations.” 

Specific changes include:

* requiring parties to meet and confer with the FTC on an accelerated schedule to resolve electronic discovery issues related to civil investigative demands (“CIDs”) and subpoenas;

* streamlining the procedure to resolve disputes over FTC subpoenas and CIDs;

*  expediting the pre-merger review process by authorizing FTC General Counsel to initiate enforcement proceedings when a party fails to comply with the Hart-Scott-Rodino second request process;

* relieving a party of the obligation to preserve documents for an FTC investigation if a year has passed without any written communication from the FTC.

The FTC is also proposing to amend Rule 4.1(e) regarding attorney disciplinary procedures by providing additional guidance regarding the appropriate standards of conduct and procedures to address any alleged violations. 

The proposed rule changes will be published in the Federal Register and subject to public comment until March 23, 2012.

The FTC has separately approved Rule 2.17 to aid in maintaining the confidentiality of its investigations.  This new rule delays notifying targets of FTC investigations that the FTC has requested information about them from third parties, when such disclosure would tip them off or otherwise jeopardize the investigation.

The FTC alleges that these three competitors violated Section 5 of the Federal Trade Commission Act (“FTCA”) by conspiring to fix prices for ductile iron pipe fittings, which are used in municipal water systems around the United States.  The FTC’s complaint also charges McWane with illegally maintaining monopoly power in the market for domestically-produced pipe fittings.   Sigma has settled its claims via a consent decree, which does not include an admission of liability or monetary penalties. 

According to the FTC, “McWane invited Sigma and Star to collude with it” in 2008 by outlining a plan to raise and fix prices for imported iron pipe fittings.  The FTC alleges that the companies agreed, exchanged information through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and subsequently raised their prices in January and June of 2008.

The FTC also alleges that McWane and Sigma entered into a separate anticompetitive agreement to restrain trade in the market for domestic pipe fittings.  In 2009, as part of the Stimulus Act, Congress allocated more than $6 billion to water infrastructure projects, with a mandate that only domestic materials – including pipe fittings – could be purchased with the stimulus dollars.  The FTC alleges that McWane illegally maintained monopoly power in this market for domestically-produced pipe fittings by successfully persuading Sigma to “abandon” its efforts to enter the market, agreeing instead to act as a distributor for such materials for McWane.

The proposed settlement order against Sigma would prohibit Sigma from a variety of anticompetitive activities relating to ductile iron pipe fittings, including: (1) participating in or maintaining any conspiracy to fix, raise, or stabilize the prices of these pipe fittings; (2) allocating or dividing markets, customers, or business opportunities for these pipe fittings; and (3) participating in or facilitating any agreement between competitors to exchange sales information or other competitively sensitive information relating to the price of these pipe fittings.  The proposed settlement order will be subject to public comment for 30 days, after which the FTC will decide whether to make the settlement order final.  The FTC is scheduled to make its final decision on February 6, 2012.

Although price fixing cases are more commonly prosecuted as criminal violations of the Sherman Act by the U.S. Department of Justice, Section 5 of the FTCA also provides the FTC with the power to bring such cases.  Although uncommon, there is some history of the FTC pursuing price fixing cases, such as the 2001 case against AOL Time Warner and Vivendi Universal for conspiring to fix prices of audio and video recordings of the “Three Tenors” concerts.

The companies manufacture bearings for the automotive and aerospace industries. 

The Commission is investigating whether the companies violated European Union (“EU”) laws prohibiting cartels and restrictive business practices by allegedly entering into agreements which fixed the prices for ball-bearings.  The Commission noted that the inspections are part of a preliminary investigation and do not mean that the companies have committed any anticompetitive behavior. 

SKF, the world’s largest rolling bearings manufacturer, said its offices in Gothenburg, Sweden and Schweinfurt, Germany were visited by EU Officials. 

SKF and Schaeffler are both cooperating with the investigation.

Judge Howell’s order in United States v. H&R Block, Inc., Civ. No. 11-00948 (BAH), unequivocally found that the proposed acquisition violates Section 7 of the Clayton Act.  The court based its decision on evidence including “documents and factual and expert testimony presented at an evidentiary hearing, the applicable law, and the parties’ legal memoranda and arguments ….”

Although the Memorandum Opinion containing the court’s reasoning has been filed under seal to allow the parties to redact confidential information, the result is plain: H&R Block and 2SS are to remain distinct entities.

The proposed acquisition was entered into on October 13, 2010.  H&R Block agreed to pay $287.5 million in cash for 2SS. 

In a complaint filed in May 2011, the U.S. Department of Justice (“DOJ”) alleged that the three largest companies in the digital do-it-yourself tax preparation products market “service approximately 90% of all consumers,” and that the proposed acquisition of 2SS by H&R Block would create a duopoly by uniting the second and third largest providers.  The DOJ named Intuit, Inc., maker of TurboTax, as the industry leader.

In defining the relevant product market, the DOJ claimed that because “[t]here are no reasonable product alternatives” to digital do-it-yourself tax preparation products, the product market should exclude “pen-and-paper” tax preparation or other services that offer tax preparation assistance, such as the H&R Block storefronts. 

Ultimately, the court was persuaded by the DOJ’s arguments and enjoined the merger.

First, on October 14, 2011, the U.S. Department of Justice, the Federal Trade Commission and the European Commission (the “EC”) issued an updated set of “best practices” that they use to coordinate merger reviews under their concurrent jurisdictions.  Three days later, the EC announced another set of revised best practices regarding its unilateral review of alleged anticompetitive conduct.

The revised practices regarding merger reviews are the latest development in a joint effort by the U.S. and the EC, started in 1991, “to promote cooperation and coordination and lessen the possibility or impact of differences … in the application of their [respective] competition laws.”  In 2002, they jointly issued their first set of best practices on concurrent merger reviews.

The trans-Atlantic antitrust enforcers have now revised those practices, “confirming” the 2002 version and building on the “experience gained” since they were issued. 

The most significant enhancement is the emphasis on the role of merging parties in facilitating cooperation.  For example, the revised practices encourage parties to authorize the agencies to share information, and to execute confidentiality waivers to enable such sharing.

The practices also advise parties to coordinate the timing of their filings with the various agencies, warning that if a final decision in one jurisdiction is reached before filing has taken place in the other, any possibility of meaningful cooperation between the agencies will have been excluded.

In addition, the practices implore the agencies to do their part to improve coordination.  For instance, they advise the agencies to:   

• contact one another promptly upon learning of a merger that may require simultaneous review;  

• align the timing of their investigations;

• engage in inter-agency consultations, particularly at “key stages” such as before issuing a second request, negotiating remedies, or deciding to prohibit a merger;

• sharing information such as draft discovery requests and their analyses of market definition, competitive effects and other relevant issues; and

• permitting parties to give joint presentations, interviews and document submissions to the agencies.

The revision notes the particular value of cooperating with respect to remedies, and includes an expanded discussion of how coordination can be improved in that regard.  For instance, it advises the agencies to “keep one another informed” of remedy discussions, “share draft remedy proposals,” and generally ensure that their remedies “do not impose inconsistent or conflicting obligations.”  The revised practices also encourage improvement of coordination with authorities in other nations.  For example, they advise parties to inform the U.S. and EU of any actual or anticipated outside review, and they advise the agencies to “seek to cooperate with [such] other authorities….” 

Like the revised best practices on merger review, the EC’s recently-revised best practices for unilateral antitrust proceedings also aim to promote efficiency.  They follow a 2010 draft and were developed through “public consultation and practical experience.”  Significant improvements over the 2010 draft include advising the EC to:     

• inform parties of the parameters for potential fines;

• extend “state of play meetings” to cartel cases and complainants in certain circumstances;

• provide enhanced access  to “key submissions” such as economic studies; and

• publish rejection of complaints.

The EC has also expanded the role of the independent Hearing Officer, who is responsible for guarding the procedural rights of the parties being reviewed.  Among other changes, the Hearing Officer can now resolve issues regarding attorney-client privilege and questions that might force parties to admit to violations.

The two corporations are large “midstream energy” companies that process and transport oil and gas.  If the deal is approved by shareholders and the FTC, Kinder Morgan will be the largest midstream energy company in North America, controlling some 67,000 miles of pipelines linking every major production field to market.

The FTC is expected to examine whether the combined firm will exert too much control nationally, with particular attention to certain local markets where the firms have overlapping networks.  There is substantial overlap of networks in the center of the Untied States, between the Rocky Mountains and the Midwest.

Kinder Morgan has stated it is willing to sell assets to win approval of the deal.  Some concern about decreased competition may be eased because pipeline rates are regulated by the Federal Energy Regulatory Commission, which must also approve the closure of any pipelines where no alternate supply routes exist.

It is not hard to find precedent for divestiture in the sector.  In fact, the FTC intervened in a previous El Paso merger.  In 2001, El Paso and its merger partner were required to divest 11 gas pipelines stretching more than 2,500 miles before the deal was allowed to proceed.

The Kinder Morgan transaction – which contains a $650 million breakup fee – is expected to close next spring.  The deal has already triggered a lawsuit by the Louisiana Municipal Police Employees Retirement System against Goldman Sachs.  The fund claims that Goldman Sachs – which owns about 20 percent of Kinder Morgan – had a conflict of interest when it advised El Paso to sell to Kinder Morgan Inc.  The lawsuit alleges Goldman advised El Paso to sell at a lower price to earn more fees than if El Paso had gone through with a previously announced spinoff.

The Guidelines describe how the Competition Bureau will analyze merger transactions. 

The new Guidelines were issued on October 6, 2011, after the Bureau held consultations during the last two years with foreign competition agencies and throughout Canada.  The changes are the first revisions to the Guidelines since 2004. 

The Guidelines were changed after the United States revised its Horizontal Merger Guidelines in 2010.  As we reported in an earlier post, the U.S. revisions offered a more tolerant approach for analyzing mergers by downplaying the role of market definition and by emphasizing the need to avoid interference with competitively beneficial mergers. 

Some of the Canadian revisions follow the U.S. approach by having less of an emphasis on market definition and by looking more at the competitive effects of a merger.  Other features of the new Guidelines include discussing how a merger is defined under the Competition Act, providing for greater scrutiny of vertical mergers, and giving an update to the merger “efficiencies defence.”

A draft of the Commission’s proposed revisions to the EU’s 2004 Markets in Financial Instruments Directive (“MiFID”) obtained by some news outlets would require “that all trading venues on which commodity derivative contracts are traded adopt appropriate [position] limits or alternative arrangements to ensure the orderly functioning of the market and settlement conditions for physically delivered commodities and provide systematic, granular and standardised information on positions by different types of financial and commercial traders to regulators … and market participants ….”

The Commission is reported to be simultaneously drawing up plans for an overhaul of the Market Abuse Directive (“MAD”) enacted in 2003.  If adopted by the Council of the European Union and the European Parliament, that reform would give European regulators enhanced authority to investigate trading systems on spot commodity markets, which had thus far escaped effective oversight.

Reuters has quoted a leaked draft of the Commission’s proposal as saying that “By gaining access to spot commodity market traders’ systems, competent authorities are also able to monitor real-time data flows.”

The Commission’s proposed amendments to MiFID and MAD are expected to be made public – officially, this time – this month.