8 Key M&A Advisory Questions Are there any exemptions (e.g., McCarren or state action)?Are there any foreign, federal, or state filings?How long will it take?What issues will be analyzed?If there is a problem, can we fix it?
9 H-S-R Filings with FTC/DOJ Jurisdictional Elements:Size-of-Transaction Threshold:$50MSize-of-Person Test:$100M/$10M persons for deals valued at less than $200M;No Size-of-Person requirement for deals valued at greater than $200M.ExemptionsItem 4(c) documents
11 Preliminary DOJ Review FTC Merger Screening H-S-R FilingPreliminary DOJ ReviewFTC Merger ScreeningFTC or DOJ Obtains Clearance30 DAYSMeetings/ Presentations To Avoid Second RequestEarly TerminationSecond RequestCompany Responds to Second RequestFTC or DOJ Staff RecommendationOral and Written Presentations To Avoid ChallengeNo Suit30 DAYS + Voluntary ExtensionsFTC: BC/BE DOJ: Front OfficeNo SuitCommissioners or AAGNo SuitSeek P.I.
12 What Issues Will FTC/DOJ Analyze? Nature and extent of competition between the merging partiesMarket definitionGeographicProductMarket participants and concentrationEase of expansion/entry (including state regulatory requirements)Market conditions which increase/decrease the potential for anti-competitive effects
13 Examples in Specific Insurance Industries HealthcareTitleDisabilityLife
14 Health Insurance Mergers Investigated By FTC/DOJ United HealthCare Corp. / GenCare Health Systems, Inc. (1994)First second request: DOJ investigated but didn’t challenge merger creating 39-47% of HMO, 45% of PPO, and 41% of HMO-PPO enrollees in St. Louis.United HealthCare Corp. / MetraHealth Cos. Inc. (1995)First divestiture: United resolved Federal & State antitrust concerns by agreeing to sell MetraHealth’s HMO serving greater St. Louis.Wellpoint Health Networks Inc. / Health Systems Intl. Inc. (1995)No second request for proposed creation of second largest HMO in U.S.
15 Health Insurance Mergers Investigated By FTC/DOJ (cont’d.) Aetna Inc. / The Prudential Insurance Co. of Am. (1998)Seven-month investigation by DOJ & TX:Count I: reduction in competition in the sale of HMO and HMO-POS plans in Houston ( = 63%) and Dallas ( = 42%);Count II: reduction in competition to purchase physician services in Houston and Dallas;Consent decree required Aetna to divest NYLCare HMO operations in Houston and Dallas.
16 Health Insurance Mergers Investigated By FTC/DOJ (cont’d.) Anthem/Wellpoint Health Networks (2004)In October 2003, Anthem announced its intention to acquire Wellpoint Health Networks for $16 billion in cash and stock.Physician and hospital groups oppose the merger on grounds it would lead to further industry consolidation; Congressional members call for FTC investigation of deal.DOJ conducts a 4 month investigation, which it closed on March 9, 2004.
17 Health Insurance Mergers Investigated By FTC/DOJ (cont’d.) Anthem/Wellpoint Health Networks (cont’d)In announcing its decision, the DOJ explained that it had examined the following issues:1. The competition for sale between Anthem and Wellpoint for the sale of health insurance products;2. The possibility that a combined Anthem/Wellpoint would have buyer-side market (monospony) power;3. Despite the lack of direct competition, whether the combination of complementary Blues plans might increase their incentives or ability to exercise monopsony power;4. The possible effects of this deal on competition for the acquisition of Blues plans to the detriment of the plans’ shareholders.
18 Health Insurance Mergers Investigated By FTC/DOJ (cont’d.) Anthem/Wellpoint Health Networks (cont’d)Even as it was announcing the close of its investigation, the DOJ stated:“Although this particular transaction should not threaten to harm competition or consumers, we will continue to be vigilant in our enforcement of the antitrust laws in this area.”United Health/Mid Atlantic Medical Services (2004)United Health’s acquisition of Mid Atlantic Medical Services in February 2004 created the second largest US health insurer
19 Title Insurance Mergers Investigated By FTC/DOJ Lawyers Title Corp. / Reliance Group Holdings, Inc. (1997)FTC required divestiture of the plans and related agreements in seven counties in FL, three in MI, St. Louis and D.C.Commonwealth Land Title Insurance Co. / First American Title Insurance Co. (1997)FTC required dissolution of JV and refunds to customers in D.C. area.Fidelity National Financial, Inc. / Chicago Title Corp. (1999)FTC required divestiture of title plant interests in six CA counties.
20 Life/Home Service Insurance Mergers Investigated By FTC/DOJ AEGON N.V./Transamerica Corp. (1999)FTC terminated its 30-day review of $9.7 billion transaction creating the 3rd largest US Life insurer.Manulife Financial/John Hancock Financial Services (2003)In November 2003, FTC granted early termination of the 30-day waiting period on Manulife’s $10.4 billion acquisition of John Hancock.
21 Life/Home Service Insurance (cont’d) Bank One/Zurich Life (2003)In July 2003, FTC closed its investigation of Bank One’s $500 million acquisition of the U.S. life insurance business of Zurich Life.St. Paul/Travelers (2003)FTC granted announced early termination in December 2003 of the HSR waiting period. St. Paul/Travelers announced completion of the merger on April 1, creating the second largest US commercial insurer.
22 Disability Insurance Mergers Investigated By FTC/DOJ Provident Cos., Inc. / The Paul Revere Corp. (1996)FTC granted early termination.Provident Cos., Inc. / UNUM Corp. (1998)Consent decree resolved concerns regarding the sale of disability insurance sold to individuals in the U.S.
23 Restructuring to Alleviate FTC/DOJ Concerns FTC divestiture study and growth of big foot print mergers have changed the restructuring rules.Consent decree terms and conditions are much stricter (e.g., fix-it-first, clean sweep, monitor trustees, technical assistance).Licensing is disfavored.