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Dec. 9 — General Electric Co.'s decision to abruptly abandon its $3.3 billion deal with Electrolux AB midtrial is highly unusual, according to two past heads of the Justice Department's Antitrust Division.
“I’m not aware of an instance when a party in a merger case has abandoned a transaction apparently because of antitrust concerns at this stage of the proceedings—as the trial for injunctive relief is on the brink of conclusion after several weeks in court,” James F. Rill, senior counsel with Baker Botts LLP in Washington, D.C. told Bloomberg BNA Dec. 10. Rill served as head of the Antitrust Division from 1989 to 1992, an especially active time for merger challenges in the U.S.
Ky Ewing, who headed the agency from 1978 to 1980, agreed, saying he couldn't “remember any company quitting this late in the game.”
“While it is not uncommon for a party to pull the plug on the filing of a challenge or after an adverse trial court decision, the timing here is odd,” Rill said.
GE terminated the deal only hours after getting the right to do so “at 12:01” that morning, said David Gelfand, the deputy assistant attorney general of the Justice Department's Antitrust Division, at a press conference that day. The agency's lawyers had come to court Dec. 9 planning to present a final expert witness and, Gelfand said, “didn't see” the termination coming.
Most parties to a challenged merger never see the inside of a courtroom. Some abandon their deals altogether, as Thai Union Group did recently when faced with a DOJ challenge of its $1.5 billion bid for Bumble Bee Foods LLC.
Comcast Corp. also dropped its $45.2 billion bid for Time Warner Cable Inc. in April after the Justice Department and the Federal Communications Commission opposed the deal (81 ATD, 4/28/15); (79 ATD, 4/24/15).
Other merger partners offer—or are required—to divest assets in markets where the government has identified competition concerns. Staples Inc. recently said it's ready to sell assets of up to $1.25 billion in order to get the Federal Trade Commission to let it buy rival Office Depot Inc. (233 ATD, 12/4/15). The concessions weren't enough to forestall a formal complaint, however, and the government filed for an injunction blocking the deal just days later on Dec. 9.
NXP Semiconductors NV agreed in a Nov. 25 consent order to divest its radio frequency power amplifier business to allay the FTC's concerns that its $11.8 billion deal with Freescale Semiconductor Ltd. would harm competition (229 ATD, 11/30/15). The European Union had required similar divestitures.
In October, Pfizer Inc. agreed to sell the rights to four generics to get approval for its $17 billion bid for Hospira Inc. It's $160 billion bid for Allergan is pending, but will likely face similar concerns (226 ATD, 11/24/15).
Even when the parties do end up in court, the government doesn't always prevail on its competition claims.
On the one hand, the agency convinced a federal judge in Washington, D.C. this summer that the proposed merger between US Foods Inc. and Sysco Corp. would harm competition in the broadline distribution market (125 ATD, 6/30/15).
Just months later, however, it failed to secure an injunction in Ohio blocking Steris Corp.'s planned $1.9 billion takeover of Synergy Health Plc. (186 ATD, 9/25/15). The court didn't agree with the agency that the deal would harm future competition in the market for sterilization services.
GE had no comment on the timing of its decision to terminate the deal. That doesn't mean, however, that it was worried about an imminent loss in court.
“When the parties abandon a deal during a challenge it is generally because one party (normally the acquired one) just does not want to be in limbo for several additional months,” said Steven A. Newborn, a partner at Weil, Gotshal & Manges LLP in Washington, D.C. and former commissioner at the Federal Trade Commission.
“They may not have abandoned the deal before because the drop date had not been reached and the parties could not agree mutually to terminate before that date,” he told Bloomberg BNA. “It is almost never because the trial is going one way or another.”
Electrolux will pay GE a breakup fee of $175 million, per the terms of the agreement.
GE is reportedly in advanced talks to buy the drill-bits and drilling-services divisions of Halliburton Co., which is currently shopping assets in order to win approval for its takeover of Baker Hughes Inc. Bloomberg New reported the talks Dec. 9.
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