Antitrust M&A Snapshot - Q4 2022 | McDermott

Antitrust M&A Snapshot | Q4 2022


McDermott Will & Emery’s global competition practice can assist clients with antitrust M&A issues in various jurisdictions around the world. Feel free to contact one or more of our partners in our various offices. The individuals below can assist or can refer you to one of our many other lawyers in our competition team who can help with a specific question.

United States: Jon DubrowJoel GrosbergRay Jacobsen and Stephen Wu

Europe: Jacques BuhartChristian KrohsHendrik Viaene, Frédéric Pradelles and Stéphane Dionnet


  • DOJ Sees First Merger Win After String of Losses 

Penguin Random House’s planned acquisition of rival Simon & Schuster was blocked by Judge Florence Pan of the US District Court for the District of Columbia on November 21. Judge Pan’s decision is significant because she accepted the Department of Justice’s (DOJ) theory that the merger would lead to lower compensation for best-selling authors. This case is distinguishable from most previous merger challenges because it focused on the transaction’s increasing concentration in the purchase of goods or services rather than their sale.

Penguin and Simon & Schuster are two of the “Big Five” publishing houses. Judge Pan concluded that the post-merger entity would control 49% of the market for the publishing rights to so-called “anticipated top-selling books,” or those that come with an author advance of $250,000 or more. Judge Pan accepted the government’s narrow market definition and price discrimination theory that focused on author/labor compensation as a metric of harm. The parties have since abandoned the transaction. This decision may embolden the DOJ and Federal Trade Commission (FTC) to challenge more transactions based on the impact on labor and salaries rather than the impact on consumer prices.

The Justice Department’s win in Penguin follows a string of losses last quarter, some of which have pending appeals:

  • Illumina, Inc.’s, vertical merger with Grail Inc. was finalized in August 2021 despite pending challenges from the FTC and European Commission (EC). The FTC administrative law judge rejected staff’s challenge to the consummated transaction, and FTC staff appealed the ruling to the FTC commissioners on September 2, 2022. On December 5, the EC ordered the companies to unwind the deal and accused the companies of gun-jumping and violating interim measures imposed in September 2021 that required the companies to keep operations separate for the duration of the EC’s merger review.
  • The Justice Department appealed its loss in U.S. Sugar Corporation / Imperial Sugar Co. to the US Court of Appeals for the Third Circuit in September 2022 and requested an emergency stay. The emergency stay was denied and, on November 29, U.S. Sugar informed the Third Circuit that it closed its acquisition of Imperial.
  • Two months after the Justice Department loss in UnitedHealth / Change Healthcare, the DOJ appealed the decision to the US Court of Appeals for the District of Columbia Circuit. The appeal comes more than one month after the parties notified the court that the deal closed on October 3.
  • The DOJ also lost its challenge of Booz Allen Hamilton’s acquisition of EverWatch Corporation in October 2022. The deal closed on October 14, but the DOJ sought another temporary injunction while it decided whether to appeal the decision. The district court rejected the Justice Department’s bid for a temporary injunction, stating that the “ship has sailed” because the deal closed. DOJ voluntarily dismissed the case in December.
  • FTC Brings Suit Against Microsoft/Activision

On December 8, 2022, the FTC brought suit to stop Microsoft’s $68 billion acquisition of Activision, Inc., a vertical deal in the online gaming space involving nascent markets where competition is still evolving. The online gaming arena is transitioning from a console-based marketplace to streaming and cloud-based services for gaming. This enforcement action demonstrates the FTC’s aggressiveness in challenging vertical transactions in technology markets. Microsoft has announced its commitment to behavioral remedies that it says will preserve competition by supplying Activision games, such as the highly popular game “Call of Duty,” to Microsoft’s gaming system and game streaming competitors. However, the FTC, similar to the DOJ’s challenge to Penguin Random House’s horizontal acquisition of Simon & Schuster, is unwilling to accept behavioral remedies. Nevertheless, some courts have rejected FTC and DOJ challenges where the parties promised to comply with behavioral commitments.

  • Updated Merger Guidelines Expected Soon

On January 18, 2022, The FTC and the DOJ launched a joint public inquiry soliciting input on ways to modernize the federal merger guidelines. The federal enforcement agencies voiced concerns over increased market concentration across many industries. The issues of interest involve reevaluating the agencies’ positions on the types of transactions that should be viewed as presumptively anticompetitive, market definition, so-called “nascent” competition, buyer-side monopsony power (with an acute focus on labor markets) and digital (i.e., “tech”) markets. The new merger guidelines, expected to be released in Q1 of 2023, will likely be a major overhaul of the prior guidelines and empower the agencies to bring enforcement actions in line with theories applied in recent investigations and merger challenges.

  • Merger Fees Changing

Congress’ $1.7 trillion fiscal year 2023 spending package includes meaningful changes to merger filing fees. The Merger Filing Fee Modernization Act will change filing fees for deals less than $1 billion to a range of $30,000 and $250,000. The Act would also increase fees for mergers greater than $1 billion, with fees ranging from $400,000 to $2.25 million. All fees will be tied to inflation through the Consumer Price Index.


  • The EC Launches a Consultation on Its Draft Revised Market Definition Notice

On November 8, 2022, the EC launched a public consultation on its draft revised Market Definition Notice. The Market Definition Notice is being revised for the first time since its adoption in 1997, taking into account significant developments, including competition on non-price elements (such as innovation and quality), the development of digital and innovation-intensive markets, and increasing globalization.

The proposed changes, which will impact how the EC analyses transactions, provide new or additional guidance on various key market definition issues, including:

  • Explanations on the principles of market definition and the way market definition is used for the purpose of application of competition rules.
  • Greater emphasis on non-price elements such as innovation and quality of products and services.
  • Clarifications regarding the forward-looking application of market definition, especially in markets that are expected to undergo structural transitions, such as technological or regulatory changes.
  • New guidance in relation to market definition in digital markets, including, for example, multi-sided markets and “digital eco-systems” (e.g., products built around a mobile operating system).
  • New principles on innovation-intensive markets, clarifying how markets should be assessed where companies compete on innovation, including through pipeline products.
  • More guidance on geographic market definition, including the conditions to define global markets, the approach to assessing imports, as well as the EC’s approach to local markets defined by catchment areas (e.g., in the retail sale of consumer goods).
  • Clarification in relation to the quantitative techniques, such as the small but significant and non-transitory increase in price (SSNIP) test, that the EC may use when defining a market.
  • Expanded guidance on possible sources of evidence and their probative value, based on the EC’s material experience and fact-based approach to market definition.

While these are only proposed changes, the final version is expected to be released in 2023, after receiving public comments.


  • UK Orders a Chinese Firm to Divest Its 83% Controlling Stake in a Welsh Semiconductor Wafer Factory Based on National Security Concerns

On November 16, 2022, the UK Secretary of State for Business, Energy and Industrial Strategy (BEIS) effectively blocked a transaction in the semiconductor industry under the National Security and Investment Act 2021 (the NSI Act). Nexperia, ultimately owned by Wingtech of China, was ordered to divest its 86% controlling share of the UK-based Newport Wafer Fab (Newport), following a prolonged NSI review which commenced on May 25.

The Newport/Nexperia deal is the first example of BEIS using its powers to review transactions that closed prior to the NSI Act coming into force. The BEIS justified the prohibition on the basis of two main national security concerns: the “technology and know-how that could result from a potential reintroduction of compound semiconductor activities at the Newport site [could] undermine UK capabilities,” and “the location of the site could facilitate access to technological expertise and know-how in the South Wales Cluster (“the Cluster”), [which in turn] may prevent the Cluster being engaged in future projects relevant to national security.”

National security, or foreign direct investment, filings and reviews are becoming an increasingly important factor in M&A clearance.



Notable US Cases

Booz Allen Hamilton Holding Corp., Booz Allen Hamilton, Inc. / Everwatch Corp., EC Defense Holdings LLC and Analysis, Computing & Engineering Solutions, Inc. DOJ Challenge rejected, transaction closed A signals intelligence modeling and simulation contract with the National Security Agency (NSA) for which the parties were the only remaining bidders. The DOJ alleged that Booz Allen and EverWatch were the only remaining competitors for “Optimal Decision,” a contract with the NSA. Because the firms were the only two remaining competitors for the contract, the DOJ asserted that the merger agreement violated Section 1 and should be reviewed under a quick-look analysis. The court disagreed, applying a full rule of reason review.

The court found three fatal flaws in the DOJ’s arguments against the transaction. First, there was no direct evidence of harm. The government pointed to documents created when Booz Allen employees first learned of the deal that discussed reducing competitive efforts on Optimal Decision. The defendants were able to rebut that point with further evidence that Booz Allen management informed employees that competition with EverWatch would continue while the deal was pending.

Second, the DOJ was unable to prove that the transaction would reduce the incentive to compete in the future. The defendants successfully argued that Booz Allen’s desire to keep its reputation for strong performance, and its bonus-incentive program for employees who win contracts, would ensure that its two bids on the contract would be as aggressive as if there was no acquisition of EverWatch.

Finally, the court found the DOJ’s market definition to be too narrow. The government argued a single-customer / single-contract market. The court held that modeling and simulation services were provided outside of this single contract. The court rejected the DOJ’s argument that the specific application to this customer’s needs represented a separate market, finding that application-specific knowledge was transferable so other modeling and simulation providers could serve this customer, if needed.

Ultimately the court was not persuaded by the DOJ’s economic incentive theory or its proffered market definition.

Bertelsmann SE & Co. KGaA, Penguin Random House, LLC / ViacomCBS, Inc., Simon & Schuster, Inc. DOJ Challenge successful, transaction abandoned Two of the “Big Five” publishers purchasing rights to “anticipated top-selling books” (those where the author would earn an advance of $250,000 or more). The DOJ’s theory in this case focused on the transaction’s increasing concentration in the purchase of publishing rights to anticipated top-selling books.

The so-called Big Five publishing houses publish 91% of anticipated top-sellers. The proposed merged firm would have controlled 49% of the market, a market concentration that is presumptively illegal under the horizontal merger guidelines and case law benchmarks.

The court placed significant weight on executive testimony and carefully scrutinized expert testimony at trial. The court rejected the behavioral remedy offered by defendants, which would require Penguin and Random House to continue to bid independently even under common ownership, finding that the defendants’ executive testimony and evidence lacked credibility. The court also refused to admit the parties proposed evidence of predicted cost-savings because it was not verified by an independent party.

Lastly, the court pointed to prior allegations of collusive behavior against the Big Five publishing houses as further evidence of the likelihood that the merger would harm authors.

The court agreed with the DOJ that the merged firm could decrease advances to authors of anticipated top-sellers if the transaction was consummated. In recent years, the agencies have increased their focus on competition in labor markets. Having successfully argued compensation for labor as a metric of harm, enforcement agencies may now be emboldened to challenge more transactions that affect salaries in narrow markets.

The parties declined to appeal the decision and abandoned their deal.

Microsoft Corporation / Activision Blizzard, Inc. FTC Challenged (1) High-performance game consoles
(2) Game library subscriptions
(3) Cloud gaming subscriptions.
The FTC brought a vertical challenge to Microsoft’s (a maker of video game consoles and provider of gaming services) proposed acquisition of Activision (a game developer). Microsoft sells Xbox gaming consoles as well as subscription and cloud gaming services. Activision is best known for developing the Call of Duty franchise.

The FTC’s complaint alleges that the acquisition would allow Microsoft to make fewer titles available on other platforms and lessen the performance quality of games. Microsoft has acquired at least 10 third-party game developers and the FTC alleges that it has “frequently” made those acquired games exclusive to Xbox after the acquisitions, showing a pattern of anticompetitive conduct.

The FTC’s complaint alleges three relevant markets: (1) high-performance game consoles, (2) game library subscriptions and (3) cloud gaming subscriptions. The FTC alleges each would be harmed by the acquisition, which the FTC asserts would allow Microsoft to harm its rivals in those markets by denying or degrading access to Call of Duty.

Available game consoles include Xbox, Sony’s PlayStation and Nintendo’s Switch. The FTC argues that the Switch is distinguishable because it is lower performance and portable, whereas Xbox and PlayStation offer higher resolution graphics and better performance. The FTC also points to the price distinction: Xbox and PlayStation retail for $499.99 while the Switch retails for $299.99.

Microsoft offers the Xbox Game Pass subscription service, which currently has around 25 million subscribers and offers unlimited access to downloading hundreds of games. The top-tier subscription also gives access to Xbox Cloud Gaming, which allows gamers to stream rather than download.

Microsoft has offered assurances that it will keep Call of Duty on PlayStation and will work on a deal to bring a version of the game to Switch, which the FTC argues are not enough as they are non-binding commitments. Microsoft also said it will allow the use of outside payment in apps to avoid interfering with business between developers and users. Microsoft also has reached an agreement with the Communication Workers of America union that requires Microsoft to take a neutral approach to unionization efforts at Activision after the deal closes. The union said that the deal resolves problems it has experienced with unionization efforts at Activision.

Notable European & UK Cases

Kronospan / Pfleiderer Polska EC Abandoned  High combined shares in particleboards, fiberboards and components. On November 30, 2022, the EC announced that Kronospan, an Austrian manufacturer and supplier of wood-based panels, has abandoned its plan to buy the Polish business of rival wood-panels maker Pfleiderer due to expectations that the EC would prohibit the transaction. The abandonment follows the findings of the EC’s in-depth investigation and the failure of Kronospan to submit suitable remedies.

Executive Vice-President Margrethe Vestager, in charge of competition policy, has indicated that “the proposed acquisition would have brought together two leading suppliers and created a dominant player in the markets for the supply of raw and melamine-coated particleboards around the parties’ plants in Poland and the Baltics. Our in-depth investigation showed that the proposed transaction would negatively affect competition in these markets, leading to higher prices, reduced quality or less choice for customers. As the remedies offered by Kronospan did not address our competition concerns, we could not clear the transaction. We take note of Kronospan’s decision to abandon their deal.”

The EC identified a number of preliminary concerns relating to the parties’ strong market position in the supply of certain types of wood-based panels. The transaction could lead to higher prices and less choice for construction and industry customers as well as for end-consumers for particleboards, fiberboards and components. For each of these types of wood-based panels, the parties hold high combined market shares in several catchment areas around their eastern European production plants, with limited or no credible alternative suppliers remaining following the transaction.

The EC was also concerned that, following this acquisition, Kronospan could engage in input foreclosure strategies (e.g., blocking competitors of the merged entity from gaining access to market opportunities) with regard to particleboards, fiberboards and components. Further, the transaction could increase the likelihood of the parties being able to coordinate their behavior.