Transaction Analyzed in Light of Changing Market Conditions
The Federal Trade Commission announced today that it has closed its investigation of the proposed tender offer by Omnicare, Inc. for NeighborCare, Inc., the largest and likely second-largest institutional pharmacies (IPs) in the United States, respectively. IPs deliver prescription drugs to residents of long-term care facilities – primarily skilled nursing facilities (SNFs) – and provide SNFs with pharmacy and related products and consulting services, including drug regimen reviews and a variety of compliance and oversight functions.
The Commission issued a unanimous statement that presents the reasons it chose to close the investigation. According to the statement, in multiple states Omnicare has a greater than 50 percent share of SNF beds under contract. In certain states, the acquisition of NeighborCare would cause these market shares to grow significantly. This market structure prompted the FTC’s staff to conduct a thorough investigation of the proposed transaction.
The Commission says that the evidence obtained during the investigation indicates that, under current market conditions, Omnicare’s acquisition of NeighborCare would not likely result in anticompetitive impacts, arising either from Omnicare’s exercise of unilateral market power, or from coordinated interaction among remaining IPs. As most of the remaining SNFs have three or more independent IPs within 100 miles of them, the vast majority have multiple rivals within their service areas, according to the statement. In addition, relatively easy entry into the IP marketplace would further reduce the likelihood of post-merger coordinated interaction.
The Commission further says that the transaction had to be evaluated in light of the significant changes that will occur in the health care market next year as a result of the Medicare Modernization Act, which will “profoundly affect the payment structure for the IP market.”
Consequently, the staff investigated whether, as a result of the changes brought by this Act, Omnicare will be able to leverage its market position to extract above-market rates from prescription drug plans as a condition of their joining their networks. The Commission says that, “We have concluded that the available facts, on balance, do not validate such a theory at this time.”
Finally, the Commission says that if facts do arise to indicate that the transaction “has reduced competition substantially,” it can open an investigation in the future.
The Commission vote to close the investigation and issue the statement was 5-0. The statement can be found as a link to this press release on the FTC’s Web site.
Copies of the closing letters to the companies are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No. 041-0146)
Office of Public Affairs
FTC Western Region, San Francisco