Notable US cases

FTC fails in challenge of GTCR BC Holdings, LLC acquisition of Surmodics, Inc.

Markets/structure

The FTC alleged the deal would eliminate head-to-head competition between the two leading providers of outsourced hydrophilic coatings in the United States, Surmodics and Biocoat Inc. (owned by GTCR).

Summary and observations

In November, Judge Cummings of the US District Court for the Northern District of Illinois denied the FTC’s attempt to block GTCR’s $627 million acquisition of Surmodics, the other leading provider of outsourced hydrophilic coatings for medical devices.

The FTC argued that the merger would eliminate head-to-head competition between Surmodics and Biocoat (acquired by GTCR in 2022) for outsourced hydrophilic coatings, which are a critical component in lifesaving medical devices such as catheters. The FTC alleged that the post-merger entity, absent any divestiture, would control more than 50% of the market.

Judge Cummings’ ruling demonstrates the success of parties litigating the fix. At trial, Judge Cummings repeatedly urged the parties to reach a settlement, but the FTC expressed little interest in any sort of remedy, even calling it a “smokescreen.” The merging parties, on the other hand (and in an attempt to litigate the fix), proposed a divestiture agreement whereby GTCR would sell portions of Biocoat that overlapped with Surmodics’ offerings to a third party, Integer. The FTC argued that the divestiture to Integer was not sufficient to remedy any harm because they were a new entrant in the space, but the court held that Integer was well qualified to compete. The court also relied heavily on the merging parties’ expert testimony which calculated far lower shares than the FTC asserted; ultimately, the court was persuaded that the remedy would suffice to mitigate any potential anticompetitive effects from the deal.

FTC agrees to consent order in Valvoline Inc. acquisition of Breeze Autocare

Markets/structure

The FTC alleged the deal would eliminate head-to-head competition between two quick-lube oil change companies, Valvoline and Breeze Autocare, in 25 local markets across eight states, creating combined shares in excess of 30% or more.

Summary and observations

In November, the FTC agreed to a divestiture order as a condition to closing Valvoline’s $625 million acquisition of Breeze Autocare (owned by Greenbriar Equity). As part of the agreement, the parties agreed to divest 45 quick-lube oil change retail stores, of the 200 retail stores to be acquired, to Main Street Auto. Main Street Auto is a new entrant in the 25 local markets that were the focus of the FTC.

The FTC alleged that the proposed acquisition would result in unilateral effects by eliminating head-to-head competition between the parties. However, in challenging the deal, the FTC’s complaint lacked more typical allegations in a unilateral effects case that Valvoline and Breeze Autocare are particularly close competitors or that customers lacked strong substitutes for oil-change suppliers in the local markets of concern. Instead of focusing on the potential for the new combined entity to raise prices absent competition from one another, the FTC’s theory resembled that of a coordinated effects case. Indeed, the emphasis in the complaint was that Valvoline’s post-merger market shares would be more than 50% in 17 of the 25 local markets alleged.

While this administration has shown a greater appetite for consent agreements, the antitrust theories propagated still echo a dangerous pattern: that elimination of head-to-head competition alone is bad, even when not tethered to any concrete allegations of harm.

Notable UK case

CMA grants conditional clearance in Greencore acquisition of Bakkavor

Markets/structure

Market for supply of own-label chilled sauces; effectively a four-to-three merger with two substantially smaller competitors and fringe players.

Summary and observations

The CMA reviewed Greencore Group plc’s acquisition of Bakkavor Group plc and found that the merger could lead to a substantial lessening of competition in the supply of own-label chilled sauces in the UK. The CMA considered Greencore and Bakkavor as close competitors based on tender offer data and that each served as an important constraint on the other. Post-merger, the CMA believed, the combined firm would have a substantially stronger position relative to remaining rivals such as 2 Sisters Food Group and Billington Foods, which the CMA viewed as weaker competitors. This raised concerns about reduced retailer choice and higher prices for supermarkets that would likely be passed through to consumers.

To address this concern and avoid a Phase 2 investigation, Greencore offered undertakings, including the divestment of its entire chilled soups and sauces business located in Bristol, together with associated assets and employees. Greencore also entered into a conditional agreement to sell this business to The Compleat Food Group, which the CMA assessed as a suitable purchaser.

Following a public consultation, in which grocery retailers raised no objections and several supported Compleat as an appropriate buyer, the CMA concluded that the undertakings were clearcut and effective in remedying the competition concerns.