Legal Library: Cases and Proceedings

Energy companies Energy Transfer Equity, L.P. (“ETE”), and The Williams Companies, Inc., agreed to divest Williams’ interest in an interstate natural gas pipeline to proceed with ETE’s proposed acquisition of Williams. According to the complaint, the proposed merger, if consummated, would have reduced competition in the market for “firm” – i.e., guaranteed – pipeline capacity to deliver natural gas to points within the Florida peninsula. In Florida, natural gas is extensively used for electric power generation, making competitive access to constant and reliable sources of supply critical. The complaint alleges that absent a remedy, the acquisition would eliminate the competition between FGT and Gulfstream, which historically has enabled Florida customers to obtain lower transportation rates and better terms of service. It also would have resulted in a pipeline monopoly at many natural gas delivery points within the peninsula.  The complaint also alleges that the proposed merger likely would harm future competition from a new interstate pipeline, Sabal Trail Transmission LLC, which is scheduled to start transporting natural gas to parts of the Florida peninsula in May 2017. According to the complaint, Sabal Trail and its future customers will rely on leased access to a segment of the Transco Pipeline, a Williams-owned, large interstate pipeline, for natural gas supply. The complaint alleges that the newly merged company would have an incentive to deny Sabal Trail additional capacity expansions on Transco because ETE’s FGT pipeline is a closer competitor to Sabal Trail than was Williams’ Gulfstream pipeline.

The FTC filed an administrative complaint charging that the proposed $982 million merger of Canadian chemical suppliers Superior Plus Corp. and Canexus Corp. would violate the antitrust laws by significantly reducing competition in the North American market for sodium chlorate – a commodity chemical used to bleach wood pulp that is then processed into paper, tissue, diaper liners, and other products. Superior and Canexus are two of the three major producers of sodium chlorate in North America. If the merger takes place, the new company and rival AkzoNobel will control approximately 80 percent of the total sodium chlorate production capacity in North America.  By combining more than half of all North American sodium chlorate production capacity in the merged Superior and Canexus, the acquisition is likely to lead to anticompetitive reductions in output and higher prices, the complaint alleges. Additionally, by removing Canexus as an independent sodium chlorate producer, with its large scale and low-costs, the acquisition will also increase the likelihood of coordination in an already vulnerable market, according to the complaint.  The FTC also authorized staff to seek a temporary restraining order and a preliminary injunction in federal court to prevent the parties from consummating the merger and to maintain the status quo pending the administrative proceeding. The FTC and the Canadian Competition Bureau collaborated in this investigation.  On June 30, the parties abandoned their plans.

Holding company Leucadia National Corporation has agreed to pay $240,000 in civil penalties to resolve FTC allegations that it violated federal premerger reporting laws by failing to report a conversion of its ownership interest in the financial services company Knight Capital
Group, Inc. In July 2013, Knight Capital consolidated with another financial services company, GETCO Holding Company, LLC to become KCG Holdings, Inc. That transaction converted Leucadia’s ownership interest in Knight Capital into nearly 16.5 million voting shares of the new entity, KCG Holdings, worth approximately $173 million. Leucadia did not report the transaction, according to the complaint, because it thought that it qualified for an exemption applicable to institutional investors. Although Leucadia consulted experienced HSR counsel in connection with the transaction, their counsel erroneously concluded that the exemption applied. Leucadia made a corrective filing in September 2014, acknowledging that the acquisition was reportable under the HSR Act. Even though Leucadia relied on the advice of counsel, the FTC determined to seek civil penalties because, as noted in the complaint, Leucadia had previously violated the HSR Act in 2007, which led to a corrective filing in 2008.

To settle charges that its acquisition of DSI Renal would substantially lessen competition for outpatient dialysis services in Laredo, Texas, U.S. Renal agreed to divest three clinics to Satellite Healthcare, Inc.

ArcLight Energy Partners Fund VI, L.P., agreed to divest its ownership interest in four light petroleum product terminals in Pennsylvania, to settle charges that ArcLight’s acquisition of Gulf Oil Limited Partnership from its parent company, Cumberland Farms, Inc., would likely be anticompetitive in three Pennsylvania terminal markets: Altoona, where ArcLight would own the only terminal handling gasoline and one of two terminals handling distillates; Scranton, where ArcLight would own one of two terminals handling gasoline and distillates; and Harrisburg, where ArcLight would own one of two terminals handling gasoline and one of three terminals handling distillates.

Three affiliated hedge fund companies and their management company, Third Point LLC, have agreed to settle FTC charges that they violated premerger reporting laws in connection with their 2011 acquisitions of stock in Yahoo! Inc. The complaint alleges that Third Point Partners
Qualified L.P., Third Point Ultra, LTD, and Third Point Offshore Fund, LTD failed to observe the filing and waiting requirements of the Hart-Scott-Rodino Act before purchasing shares in Yahoo. According to the complaint, the three defendant funds claimed that they were exempt from reporting to the U.S. antitrust authorities because the purchases were made solely for investment purposes. At the time of the stock purchases, however, defendant Third Point LLC, which made investment decisions on behalf of the funds, was taking actions inconsistent with an investment-only intent. Under the terms of the proposed stipulated five-year federal court order, the defendants are prohibited from relying on the investment-only exemption if they have contacted third parties to gauge their interest in joining the board of the target company, communicated with the target company about proposed candidates for its board, or engaged in other specified conduct in the four months prior to acquiring voting securities above the HSR Act threshold. In this case, the agencies determined not to seek civil penalties based on several factors, including that the violation was inadvertent and short-lived, and this was the defendants’ first violation of the HSR Act.

Pharmaceutical companies Endo International plc and Par Pharmaceuticals, Inc. agreed to divest all of Endo’s rights and assets to generic glycopyrrolate tablets and generic methimazole tablets in order to settle FTC charges that Endo’s proposed $8 billion acquisition of Par would likely be anticompetitive. New Jersey-based generic drug marketer Rising Pharmaceuticals will acquire the divested assets. Under the settlement, Endo must supply Rising with the divested products for two years, while it transfers the manufacturing technology to Rising’s chosen third-party manufacturer. Endo also must provide technical assistance, training, and other transitional services to help Rising establish manufacturing capabilities. Without the divestitures required by the proposed order, the FTC alleges that the acquisition would combine the two most significant suppliers in the market for generic glycopyrrolate tablets, which are used with other drugs to treat certain types of ulcers, and two of only four active suppliers in the market for generic methimazole tablets, which are used to treat the body’s production of excess thyroid hormone.