The legal issues that relate to mergers and acquisitions (M&A) of businesses.

A judge in Israel has stayed the proposed merger of Dor Alon Energy and Sonol Israel.  According to GLOBES' Supreme court delays Dor Alon-Sonol merger, Judge Edna Arbel stayed the merger until the Supreme Court hears an appeal by Israel's Antitrust Authority.

The Dor Alon-Sonol merger was announced in September 2005.  The Antitrust Authority opposed the merger, denying clearance. On appeal to the Restrictive Trade Practices Tribunal, the Tribunal approved the deal with conditions.  This time, the Antitrust Authority appealed to the Supreme Court.

In staying the merger pending the appeal, Judge Arbel "noted the importance of the fact that the Restrictive Trade Practices Tribunal did not reject the arguments of the Antitrust Authority concerning reasonable concern about material damage to competition."  She "largely agreed with the Antitrust Authority's economic analysis."

Things don't look good on this one . . . Stay tuned.

Comptel has filed comments in connection with Tunney Act proceedings pending in United States v. SBC Communications, Inc., which involved SBC's merger with AT&T, and United States v. Verizon Communications, Inc., which involved Verizon's merger with MCI. When the government proposes an antitrust consent decree, as it did in these cases, a court cannot enter it as final until it has reviewed it and made a finding that the decree is in the "public interest" pursuant to the Tunney Act. The government proposed two consent decrees--one for each merger.  Comptel apparently opposes the entry of both.

In its response to Comptel's opposition, the Justice Department argues that the government has met the requirements of the Tunney Act by providing the public with all of the documents and information required by the statute. The government defended its investigation of the proposed mergers and the consent decrees:

• that the government properly defined the relevant geographic market as individual buildings because "markets are properly defined based on what options a customer faces" and as "customers for local private lines can select only from the set of providers that offer service to the particular building to which those customers need to connect and the set of providers varies from building to building, it is appropriate to consider markets as small as an individual building";

• that the proposed decrees redress the harm in all 2-to-1 buildings where the government concluded that the proposed merger would cause competitive harm;

• that the resolution of the Qwest/Allegiance merger is irrelevant;

• that the proposed decrees do not increase the risk of collusion; and
  

• that several sophisticated telecommunications carriers bid for the divestiture assets demonstrates the viability of the divestiture package.

Today, the FTC announced a consent agreement on the Boston Scientific/Guidant deal. According to the complaint, the transaction would have anticompetitive effects in each of the relevant product markets defined as 1) drug eluting stents (DES) with the rapid exchange delivery system; 2) percutaneous transluminal coronary angioplasty (PTCA) balloon catheters; 3) coronary guidewires; and 4) implantable cardioverter defibrillators (ICD).

The complaint alleges that Boston Scientific’s acquisition of Guidant 1) would remove Guidant as the only potential competitor in a DES market that includes only two competitors, Boston Scientific and Johnson & Johnson; 2) would cause competitive harm in the markets for PTCA balloon catheters and coronary guidewires by eliminating competition between Boston Scientific and Guidant and reducing the number of significant competitors in the market, allowing the combined Boston Scientific/Guidant to raise prices unilaterally for both PTCA balloon catheters and coronary guidewires; and 3) may adversely affect competition in the ICD market by allowing Boston Scientific to receive information and exercise control over Cameron Health, Inc. (Cameron), a potential significant competitor.

The consent agreement purports to address these competitive concerns by requiring Boston Scientific and Guidant to:

• Divest all assets – including intellectual property – related to Guidant’s vascular business to a third party, enabling that third party to sell DES products, PTCA's, and coronary guidewires; and

• Reform certain contractual rights between Boston Scientific and Cameron to limit Boston Scientific’s control over certain Cameron actions and the sharing of nonpublic information about Cameron’s ICD product.

Companies are getting sloppy--and it's costing them. Take Qualcomm's merger agreement with Flarion Technologies. As originally drafted, the agreement required Flarion to obtain Qualcomm's written consent before presenting business proposals to any customer or prospective customer. The parties subsequently amended this provision of their agreement, but, as it turned out, the damage was done.

The parties had already reported their deal to the federal antitrust agencies pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The Justice Department investigated the transaction, cleared it, and then prosecuted Qualcomm and Flarion for gun jumping.

Gun jumping occurs when merging parties effectively close a reportable transaction before expiration of the statutory waiting period. There are many ways companies can get into trouble for gun jumping. Requiring a merger partner to get permission just to sell its products is one of the really, really obvious ones.

According to the government's complaint, the merger agreement itself was just the tip of the iceberg. The complaint alleges that Flarion regularly requested permission from Qualcomm to do what one Qualcomm executive called "pretty routine things." It asked Qualcomm for consent to market products and services; indeed, Qualcomm once denied Flarion's request for consent to offer a discount to a customer.

Included with the complaint was a settlement agreement.  As the Justice Department announced, the settlement agreement requires Qualcomm and Flarion to pay a civil penalty of $1.8 million for their alleged gun jumping activities.