13th Annual Competition Law & Economics Workshop [Insert ...unisabusinessschool.edu.au/.../session-mergers.pdf · represents clients in coordinating merger filings for cross- border

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Presented by [Insert Speaker]

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13th Annual Competition Law & Economics Workshop

Mergers Session

International mergers in practice, a case study: the 2013

acquisition by Thermo Fisher of Life Technologies.

Peter Campbell - Moderator

Friday, 23 October 2015

Elizabeth Avery Partner, Gilbert + Tobin Lawyers Elizabeth is a partner in Gilbert + Tobin’s Competition & Regulation practice. She advises on the competition and consumer law aspects of complex mergers and acquisitions, litigation and investigations, and ongoing strategic/operational advisory work, and has particular expertise in multi-jurisdictional matters.

Panellists

Dr Lilla Csorgo Chief Economist, Competition, Commerce Commission, New Zealand Dr Csorgo has extensive experience in competition policy in both the public and private sectors. Her previous positions include Vice President at Charles River Associates, Economist Member of the Canadian Competition Tribunal, and Special Economic Advisor to the Canadian Competition Commissioner.

Panellists

Gabrielle Ford Acting General Manager, Agricultural Enforcement and Engagement Unit, Australian Competition and Consumer Commission Gabrielle was a Director in the Australian Competition and Consumer Commission’s (ACCC) Merger Investigations Branch from 2007–15. During that time Gabrielle led reviews of merger transactions, including the ACCC’s investigation of Thermo Fisher’s proposed acquisition of Life Technologies Inc. In August 2015, Gabrielle joined the ACCC’s new Agricultural Enforcement and Engagement Unit.

Panellists

Natalie Yeung Partner, Slaughter and May Natalie is an experienced competition and regulatory lawyer who regularly represents clients in coordinating merger filings for cross-border merger and acquisition deals (with a particular focus on China and Asia) and under the new Hong Kong competition law. Her experience covers a range of anti-trust and merger control matters across Europe, the United Kingdom and Hong Kong.

Panellists

Thermo Fisher was a diversified global manufacturing company. Its principal activity was the production and sale of analytical instruments, scientific equipment, consumables, reagents, services and software for research, analysis, discovery and diagnostics.

In Australia, the business included distribution of scientific instruments and consumables to scientific, environmental and medical customers, the manufacture and sale of mining analysis equipment, the provision of informatics solutions, chemical manufacturing, the distribution of medical testing equipment and reagents, serum manufacturing, the manufacture of microbiological culture, and the sale of chromatography systems.

Merger Parties

Life Technologies was a global biotechnology tools company. It was active in the production and supply of technologies for a range of life sciences applications, including gene sequencing, polymerase chain reaction, sample preparation, cell culture, RNA interference analysis, functional genomics research, proteomics and cell biology applications, as well as clinical diagnostic applications, forensics and animal, food, pharmaceutical and water testing analysis.

In Australia, Life Technologies distributed its products in the areas of protein biology, molecular biology, cell culture and transplant diagnostics. It also produced sera in Australia and New Zealand.

Merger Parties

14 April 2013 – Thermo Fisher signed agreement to acquire Life Technologies for $13.6 billion

15 April 2013 – Transaction announced 2013/2014 - Transaction considered by Federal Trade Commission (US),

European Commission, ACCC, NZCC and regulators in other jurisdictions including Canada, China, Japan and Korea.

Approaches made to regulators at different times. Competition concerns identified.

Chronology

Where? Analysis of each market and likely competition issues What factors are considered in determining which should be the lead

jurisdiction to file in? Concentrate on biggest markets or jurisdictions most likely to have

problems?

Clearance Process

When? Commence confidential discussions before transaction announced – if

so, one agency or multiple? Major jurisdictions first and minor after or liaise with all from outset? Align with merger review timeframes.

Clearance Process

How? Coordinating clearance processes/liaison with regulators Local v. international advisers Background materials – who gets what – every regulator gets

everything? Framing of application – argue doesn’t raise competition issues in

each jurisdiction and wait to see the attitude of the local regulator or acknowledge other regulators already identified issues in their jurisdictions and address those issues up-front?

Clearance Process

Practical issues: Technical:

How do you come to terms with a highly technical scientific field and the way the various markets work?

How do you brief the regulator? Logistical:

Language Time Zones

Clearance Process

Thermo Fisher filed for ACCC clearance on 10 September 2013 with a targeted date for the completion of the transaction of early 2014.

Thermo Fisher applied for clearance by the NZCC on 7 November 2013. Given the NZCC’s statutory timeframes for merger reviews, a decision on the Thermo Fisher application was required in New Zealand by 20 December 2013.

ACCC / NZCC

On 20 September 2013 the ACCC commenced a public review of the proposed acquisition and invited submissions from the public.

The EC, Canada Competition Bureau and US Federal Trade Commission had all proceeded to a second phase investigation of the proposed acquisition by then, meaning that they were advanced in their investigations and had already made a substantial request for further documents and information.

Further, the FTC and EC were ready to discuss remedies by the time that the submission was filed with the ACCC

Public Review

The FTC complaint challenging the transaction alleged that the deal, as it was originally proposed, would have eliminated close competition between Thermo Fisher and Life and substantially increased concentration in the markets for short/small interfering ribonucleic acid (siRNA) reagents, cell culture media, and cell culture sera, enabling the combined firm to raise prices and reduce quality for consumers.

Federal Trade Commission

siRNA reagents are used to study gene function by selectively turning off, or “silencing,” gene expression and inhibiting protein synthesis.

Cell culture media are mixtures of ingredients which create an environment conducive to growing cells outside the body.

Cell culture sera are liquids derived from animal blood that are rich in nutrients and growth factors. The most common variety of cell culture serum is foetal bovine serum, which is preferred by scientists and researchers due to its high quality and low contamination risk.

Federal Trade Commission

Aside from Thermo Fisher and Life Technologies, there were few meaningful competitors in these three markets. Moreover, the two parties were close competitors in each relevant market and the markets were difficult to enter. The FTC alleged that the combined company would have a share of at least: 50 percent of the worldwide market for individual siRNA reagents; 90 percent of the worldwide market for siRNA reagent libraries; 50 percent share of the worldwide market for cell culture media; and 60 percent of the worldwide market for cell culture sera.

Federal Trade Commission

The investigation showed that the transaction, as initially notified, risked significantly reducing competition in the European Economic Area (EEA) with respect to the production and supply of: media and sera for cell culture; gene silencing products; and polymer-based magnetic beads.

European Commission

“The primary overlaps in the products supplied by the merger parties are in the areas of cell culture, molecular biology and protein biology. Within these broad product categories, there are … areas where the proposed acquisition raised competition concerns, due to the closeness of competition between the merger parties and where market inquiries indicated that the merged entity was not likely to be adequately constrained by existing competitors or new entrants in the relevant markets.”

ACCC

NZCC satisfied that the low aggregation of market share meant that the proposed acquisition would not result in a substantial lessening of competition in markets for all products except the production of Foetal Bovine Serum.

NZ Commerce Commission

When? What happens when a merger raises multi-jurisdiction issues? Will you hear of applications from other agencies? Is there regular reporting or is it on an ad hoc, case by case basis? Sharing of timetables and projected dates. Catch up with other investigations.

Interaction between Agencies

How? Is there any formal protocol for communication between agencies? What happens behind the scenes? Sharing of information and documents. Division of work and reliance on analysis by other agencies. Education or sharing of assessment and operational materials to

ensure consistency of approach and outcome Coordination of clearance processes – independent or managed?

Interaction between Agencies

Practical issues: Language/time zones Confidentiality arrangements (merger parties and third parties) Waivers to allow sharing of information/documentation Legal professional privilege/public interest immunity Disagreement regarding characterisation or significance of issues Dealing with local businesses who oppose international mergers Reconciliation of regulatory tests and thresholds

Interaction between Agencies

Role of smaller agencies: What are the challenges faced by regulators in smaller economies when

the lead jurisdiction is a larger economy? How does ACCC/NZCC clearance fit into the global picture – is completion

of a transaction dependent on clearance by all or just some regulators? What happens if local competition concerns are raised when the

transaction isn’t opposed in the larger/lead jurisdictions? Does it influence attitude to enforcement?

Interaction between Agencies

On 28 October 2013 the ACCC sent a market feedback letter to Thermo Fisher and Life Technologies requesting further information.

The letter indicated the preliminary view of ACCC staff that the proposed acquisition raised competition concerns in relation to the supply of cell culture serum products.

ACCC

In order to address the concerns raised by the EC, Thermo Fisher committed to divest: its HyClone business regarding media and sera for cell culture (excluding

single use technologies, where the parties' activities did not overlap); its gene modulation business (including gene silencing), including brands,

equipment, staff and its licence of certain patents; its polymer-based magnetic beads business (including brands and all other

relevant IP, customer contracts, personnel and production equipment). In addition, Thermo Fisher would commit to a 2-year transitional agreement to supply magnetic beads to the purchaser.

Commitments

On 26 November 2013, the EC announced that the transaction, as modified by these commitments, would be cleared under the EU Merger Regulation

Commission Vice President in charge of competition policy stated: "The remedies preserve competition and innovation in the life sciences industry.”

European Commission

On 19 December 2013, the ACCC announced it would not oppose the proposed acquisition, subject to a section 87B undertaking which included requirements that Thermo Fisher must: divest its Australian cell culture business and its Australian siRNA business

(components of the global businesses to be divested under the EC commitments) to an ACCC-approved purchaser; and

appoint an ACCC-approved Australian-based independent manager to manage the Australian cell culture business in the period between completion of the acquisition and divestiture.

NZCC satisfied by sale of NZ assets with respect to production of FBS.

ACCC / NZCC

On 6 January 2014, Thermo Fisher announced that, in accordance with its commitments to the European Commission and subject to regulatory approval, it had signed an agreement to sell its cell culture (sera and media), gene modulation and magnetic beads businesses to GE Healthcare, a unit of General Electric Company, for approximately $1.06 billion.

On 31 January 2014, FTC stated that GE Healthcare had the experience, reputation, and resources to maintain the benefits of competition that otherwise would have been lost as a result of the acquisition.

Divestiture

Global remedy or jurisdiction by jurisdiction? Australian concerns:

Could the ACCC be sure that post-divestiture, the purchaser would have the ability and incentive to continue to supply the products in Australia? The ACCC’s investigation revealed that at least one foetal bovine serum supplier based in Australia exported all of its product and did not supply Australian customers, so the ACCC considered there was reasonable cause for concern on this front. (“Composition risk”)

Remedies

Could the ACCC be happy with a proposed purchaser approved by the European Commission and FTC or should the ACCC insist upon having a role in approving the proposed purchaser? (“Purchaser risk”)

Could the ACCC be sure that the Australian-based assets would not be subject to competitive harm during the period of handover from Thermo Fisher to the new owner? (“Asset risk”)

To address some of these risks, Thermo Fisher’s undertaking to the ACCC included provisions for the appointment of a local Independent Manager to manage the Australian cell culture business in the period between completion of the acquisition and divestiture.

Remedies

How did you approach the matter of seeking or providing remedies in light of the developments/progress in overseas jurisdictions?

Describe your experiences in dealing with multiple regulators when it came to remedies.

The process of negotiating undertakings across multiple issues and jurisdictions.

Remedies

The remedies that Thermo Fisher offered to the EC and FTC could be argued to be enough to alleviate competition issues in Australia and NZ, eg, Thermo Fisher’s offer to divest certain brands and assets would have removed the competitive overlap in the main markets of concern in Australia and New Zealand. Why didn’t the ACCC just give informal clearance to the transaction on this basis like the NZCC did?

Why did the ACCC insist upon appointing a local independent manager when the remedy accepted by the EC already made provision for a global divestiture manager?

Remedies

“Competition enforcement agencies around the world reviewed this transaction. Throughout the investigation, Commission staff cooperated with antitrust agencies in Australia, Canada, China, the European Union, Japan, and Korea, often working closely with the staff of these agencies on the analysis of the proposed transaction and potential remedies to reach outcomes that benefit consumers in the United States. For example, the Commission and the European Commission approved GE Healthcare as the divestiture buyer on the same day. The FTC acknowledges the exemplary work done by all agencies, which led to compatible approaches on a global scale.”

Federal Trade Commission

“The Commission's investigation of these complex markets was conducted in close cooperation with a significant number of competition authorities worldwide, such as the US FTC and the Australian ACCC, making this global case a good example of international cooperation"

European Commission

Experience in dealing with multiple regulators. Do parties/advisers notice when cooperation between agencies is working

well and when it isn’t? What can be observed? Convergence or divergence between merger process and analysis and

approach of competition regulators? Risk of “group think” as a result of shared information and analysis? Can the process be streamlined? What can regulators/advisers do better?

Reviewing the review process

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