- On June 22, in a unanimous opinion, the Federal Trade Commission upheld a July 2004 initial decision by Administrative Law Judge (“ALJ”) D. Michael Chappell, ruling that Kentucky Households Goods Carriers Association, Inc. (“Kentucky Association”) engaged in illegal horizontal price-fixing in violation of the FTC Act, and that the state action doctrine does not immunize its collective rate-making from prosecution under federal antitrust laws. Chairman Deborah Platt Majoras wrote, “The principal issue here is whether the state agency responsible for supervising Respondent’s ratemaking engaged in the necessary ‘active supervision.’ . . . [W]e find that the state has fallen far short of the conduct needed to satisfy the active supervision requirement, and therefore the state action doctrine does not apply.” Accordingly, the Commission ruled that the Kentucky Association must cease and desist from collective rate-making, and that it be required to cancel and withdraw all existing tariffs and tariff supplements on file with the state.
The Commission’s opinion states that the ALJ concluded that “the Respondent’s ratemaking activities constitute unlawful horizontal price-fixing, and that Respondent is not entitled to the state action defense. We agree, and affirm the decision of the ALJ.” The opinion continues by stressing the importance of the state action doctrine, but states that, “By enabling the displacement of the antitrust laws, however, the doctrine can also allow the implementation of programs that produce powerful anticompetitive effects, including higher prices and fewer choices for consumers.”
“In this case,” the Commission writes, “the statute that authorizes the [Kentucky Transportation Cabinet] to establish collective ratemaking expressly provides that these procedures must ‘assure that respective revenues and costs of carriers . . . are ascertained.'” Under Kentucky law, the KTC is responsible for ensuring that every rate charged by carriers is “just and reasonable. . . The KTC, however, has no formula or methodology for determining whether the Kentucky Association’s collective rates comply with the statutory standards.” The KTC “does not even obtain data – including the cost and revenue data specified in the statute – that would enable it to assess the reasonableness of the Kentucky Association’s rates . . . [and] lacks the procedural elements – such as public input, hearings, and written decisions – that courts have found to be important indicators of active state supervision.” Accordingly, the FTC wrote that it agreed with the ALJ that KTC had fallen “far short of the active supervision required by Ticor, Patrick, Midcal, and other relevant cases” to support a state action defense.
- On June 21, the Commission received an application for approval of a proposed divestiture from Cytec Industries, Inc., related to Cytec’s recent acquisition of the Surface Specialties Division of UCB S.A. Under the terms of a consent order with the FTC, Cytec was required to divest certain assets related to its purchase of UCB. Through this application, Cytec has requested Commission approval to divest the UCB Amino Resins Business and the Fechenheim Additives Business, as those terms are defined in the order, to wholly owned subsidiaries of INEOS Group Limited and affiliates of INEOS Capital Limited. The Commission is accepting public comments on the proposed divestiture for 30 days, until July 20, 2005.
- On June 16, the FTC announced that it closed its investigation of the proposed tender offer by Omnicare, Inc. for NeighborCare, Inc., the largest and likely second-largest institutional pharmacies (“IP”s) in the United States, respectively. IPs deliver prescription drugs to residents of long-term care facilities – primarily skilled nursing facilities (“SNF”s) – 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 year-long 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 stated 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 stated 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.” As such, the staff investigated whether, as a result of the changes brought by this Act, Omnicare would 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 stated that, “”We have concluded that the available facts, on balance, do not validate such a theory at this time.” If facts do arise to indicate that the transaction “has reduced competition substantially,” the Commission can open an investigation in the future.
- On June 15, Federal Trade Commission Chairman Deborah Platt Majoras named Michael Salinger to be Director of the agency’s Bureau of Economics. Mr. Salinger is a Professor of Economics at the Boston University School of Management, where he has served as Chairman of the Department of Finance and Economics. Prior to joining Boston University in 1990, he was an associate professor at Columbia University Business School. From 1985 to 1986, he was a staff economist in the Bureau of Economics. Salinger has published extensively in areas of interest to the Commission’s mission, including the competitive effects of tying and of vertical mergers, the structural determinants of market power, and the statistical properties of firm growth. He serves on the editorial boards of the Journal of Industrial Economics and the Review of Industrial Organization. He has been a consultant for the FTC, the Environmental Protection Agency, the Australian Competition and Commerce Commission, and private clients. Mr. Salinger has a Ph.D. in Economics from the Massachusetts Institute of Technology and an undergraduate degree from Yale University.
- On June 15, the FTC announced that Valero L.P. (“Valero”) agreed to make three major divestitures to settle a Commission complaint that its proposed $2.8 billion acquisition of Kaneb Services LLC (“KSL”) and Kaneb Pipe Line Partners (“KPP”) would violate federal law. The divestitures will preserve existing competition for petroleum transportation and terminaling in Northern California, Pennsylvania, and Colorado, and avoid a potential increase in bulk gasoline and diesel prices. The order also requires Valero, the largest petroleum terminal operator and second-largest operator of liquid petroleum pipelines in the United States, to develop an information firewall and maintain open, non-discriminatory access to two retained Northern California terminals, in order to ensure access to ethanol terminaling in Northern California following its acquisition of Kaneb.
Under the terms of agreements between Valero and the Kaneb companies, Valero will pay $525 million for all partnership units of KSL, and will exchange $1.7 billion in Valero partnership units for all outstanding units of KPP. As a result, both KSL and KPP will become wholly owned subsidiaries of Valero, and Valero Energy, which currently owns 46 percent of Valero L.P.’s common units, will continue to own the general partner and maintain a 23 percent equity stake in Valero L.P. Valero Energy’s key businesses will continue to be concentrated in the refining, transportation, and marketing of petroleum and other petrochemical products nationwide.
- On June 13, the FTC announced that it is closing its investigation into Arch Coal, Inc.’s (“Arch”) acquisition of the Triton Coal Company’s (“Triton”) North Rochelle coal mine, saying that it will not continue with administrative litigation challenging the deal. The vote to close the investigation and discontinue administrative action was 4-1, with Commissioner Pamela Jones Harbour dissenting. The Commission majority issued a statement, Commissioner Harbour issued a dissenting statement, and Commissioner Thomas B. Leary issued an additional statement. In its statement, the Commission said that “the public interest would not be benefitted by an administrative trial in this instance.” The Commission based its decision on application of the criteria set forth in the 1995 Statement of the Federal Trade Commission Policy Regarding Administrative Matter Litigation Following the Denial of Preliminary Injunction. These criteria are: the district court’s factual findings and conclusions of law; any new evidence developed during the preliminary injunction proceeding; whether the transaction raises important issues of fact, law, or merger injunction policy that need resolution in administrative litigation; the costs and benefits of further proceedings; and any additional relevant factor. The Commission concluded that each of these criteria support a decision not to pursue administrative litigation.
Commissioner Harbour dissented. In a very well reasoned opinion, Commissioner Harbour stated, “The Commission should take advantage of this opportunity to conduct a thorough, independent review of the evidence, to determine whether an antitrust violation has occurred, and to write an opinion clarifying the law relating to coordinated interaction.” More than a year after the Commission voted to file its complaint in this matter, she said, “The evidence still supports – and, if anything, more strongly supports – a ‘reason to believe’ that Arch’s acquisition of Triton’s North Rochelle mine may substantially lessen competition in the [SPRB] coal market, and therefore may have violated the antitrust laws.”
Commissioner Harbour’s argument continued. She said that, “My disagreement with the majority’s position has both substantive and procedural dimensions. Substantively, I believe that there remains a strong factual and legal basis for an antitrust challenge, regardless of the district court and appellate court findings. I base this conclusion not only on the existing evidentiary record, but also on substantial new evidence that tends to further support the likelihood of coordinated interaction. I further believe that the district court made numerous errors of fact and economic inference, and also applied the law incorrectly. If the Commission does not continue its enforcement action, we run the risk that the district court opinion will impose an unnecessarily high burden of proof for future merger challenges predicated on coordinated effects.”
Commissioner Harbour concluded by stating, “I believe that the pursuit of administrative litigation would fulfill our Congressionally-mandated responsibility – as expert antitrust fact finders and adjudicators – to further develop the factual record, clarify the law of mergers with respect to coordinated effects, and offer much-needed guidance to the legal and business communities.”
- On June 10, the Commission received an application for approval of proposed divestiture from Cemex, S.A. de C.V. (“Cemex”) related to its recent acquisition of RMC Group PLC (“RMC”). Under the terms of the consent order allowing the acquisition, Cemex was required to divest RMC’s ready-mix concrete assets in the Tucson, Arizona area to a Commission-approved buyer within six months of signing the order. Through this application, Cemex has requested approval to divest these assets to California Portland Cement Company, pursuant to an asset purchase agreement and related agreements dated May 23, 2005. The FTC is accepting public comments on the proposed divestiture for 30 days, until July 9, 2005.
- On June 9, the FTC announced that it closed its investigation of the proposed acquisition of Caesars Entertainment, Inc. by Harrah’s Entertainment, Inc. Commission staff analyzed the likely competitive effects of this transaction in several geographic markets. The Commission ultimately concluded that no enforcement action is warranted at this time. As part of its review of the Harrah’s/Caesars transaction, the Commission determined that relief was not required in south Lake Tahoe, California, because the acquisition of Caesars by Harrah’s was unlikely to harm competition in the area that included south Lake Tahoe.
Separately, Caesars Entertainment proposed to sell its south Lake Tahoe casino to Columbia Sussex Corp. Commission staff also investigated the likely competitive effects of that acquisition. The Commission announced today that it has closed its investigation of the Caesars/Columbia Sussex transaction without taking enforcement action.
- The International Competition Network (“ICN”) held its fourth annual conference in Bonn, Germany. The conference was the largest gathering ever of competition officials, with more than 400 representatives of 80 competition agencies and competition experts from international organizations and the legal, business, consumer, and academic communities. Founded in 2001 by 13 agencies, the ICN now includes almost every competition agency in the world. At the conclusion of the conference, members approved recommendations designed to improve their merger review processes, commended the success of ICN’s anti-cartel work, and showcased the significant progress member jurisdictions have made in implementing ICN recommendations. ICN members also approved a new work agenda that includes a working group on competition issues in telecommunications services, study of agency cooperation in anti-cartel enforcement, and merger investigation and analysis. Federal Trade Commission Chairman Deborah Platt Majoras and R.Hewitt Pate, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division, participated in the conference, which took place from June 6-8, 2005.
- On June 3, a consent order announced by the Federal Trade Commission which will allow Occidental Chemical Company’s (“OxyChem”) proposed purchase of the chemical assets of Vulcan Materials Company (“Vulcan”), provided OxyChem divests Vulcan’s Port Edwards, Wisconsin, chemical facility and related assets within 10 days of its acquisition. The purchase price for the Vulcan assets is approximately $214 million, subject to adjustment for changes in net working capital, plus future contingent payments projected to equal $145 million. The consent order will alleviate the alleged anticompetitive impact of the proposed acquisition, as OxyChem and Vulcan are direct competitors in the markets for three chemicals: KOH (potassium hydroxide) and APC (anhydrous potassium carbonate), which are produced at the Port Edwards facility, and potassium carbonate (potcarb), which includes APC and liquid potassium carbonate. The Port Edwards facility will be divested to ERCO Worldwide (USA), or to another Commission-approved buyer within six months if a problem is encountered with the ERCO sale.